Andrew Cha, the founder of Colorscope, Inc., a small, vibrant firm in the graphic arts industry, had seen his business change dramatically over the years. The rapid development of such technologies as desktop publishing and the World Wide Web as well as the consolidation of several major players within the industry had radically altered his company’s relative positioning on the competitive landscape. Preparing to celebrate the company’s 35th anniversary on March 2013, Cha pondered the issues involved in moving Colorscope ahead.

Required

1. Set up a two- stage cost system to calculate the profitability of different jobs. You will have to choose resource drivers to allocate the cost of resources to cost pools. Then choose cost drivers to allocate the costs in various cost pools to jobs. Compute the cost driver rates. Calculate profitability of all jobs by allocating costs to jobs using the cost- driver rates that you estimated. It might be useful to diagram this system before you start calculating the cost pools and cost- driver rates.

2. Assignment question 1 is a full- cost analysis. Is full cost the right metric for job profitability, or should we only allocate direct costs of jobs? What assumptions are we making about the variability of overhead costs when we do a “full- cost” analysis?

3. What is the financial consequence of rework? What should Colorscope do about rework? How?

4. Should Colorscope change its incentive system?

5. How can Colorscope improve its operations and profitability?

1. Why would any customer, let alone large advertising agencies and departmental stores, go to Color scope rather than go to the large printers and horizontally integrated national prepress houses?

2. Set up a two stage cost system to figure out the profitability of different jobs.

3. Is full costs the right metric for job profitability and customer profitability?

4. What is the financial consequence of rework? What should Color scope do about rework? How?

5. Should Color scope do anything about its incentive system?

6. What do you recommend to solve the cost-quality tradeoff problem?