CASE 8.1 ACTIVITY-BASE D ANALYSIS AND BUDGETING. Doubtfire Press produces children's books for national distribution through mainstream distributors such as Baker and Taylor. It has recently decided to implement activity-based analysis and ABB to help it gain control over its publication costs. There are a number of activities and professionals involved in publishing a children's book, as summarized in the table below. MANAGEMENT ACCOUNTING R EIGHT Activity Individual Writes the 32 pages of story line Writer Creates the art for the book Illustrator Combines the word and art to make a digital file Designer Takes the digital file and prints books Printer Organizes the publication process Publisher Offers the book to the distribution network Dis tor Sells the book to the market Retailer This list of people make up the value chain for the children's book in own set of writers, illustrators, and designers. It is also the printer and pu Doubtfire, the company's owner, describes the process: Publlsher Offers the book to the distribution Distributor Retailer Sells the book to the market This list of people make up the value chain for the children's book industry. Doubtfire has its Own set of writers, illustrators, and designers. It is also the printer and publisher of the books. Kav Doubtfire, the company's owner, describes the process: We first needa good story line. This can come from one of our current authors or may be a new acquisition. Once the story line is set, the designer lays out the page so the illustra- tor knows what spaces need to be filled in. The project then goes into the art stage, which normally takes about a month for a standard 32-page book. The artist and designer are working in tandem during this period. Once the artwork is done, it has to be digitized. The designer does this using special equipment to scan the work into high-resolution files. The designer then combines the text and the artwork into one, ready-to-print file. The digital file is sent off to the printer, who puts the book in the printing queue. Before the book can be printed, color proofs are generated. These are gone over in detail by the writer, illustrator, and designer to look for any final errors, color matching, and any flaws that may have crept in. Once the proofs are approved, the printing process begins. This requires printing the pages in large, multipage sheets, then folding the "signature" into pages, cutting and binding the pages into a book. Once the book is done, the publisher, who has managed the entire process, negotiates with the distributor, setting price and pro- motion guidelines. The activities, time line, and costs for these activities are in the table below. pages, cutting and binding the pages into a book. Once th Who has managed the entire process, negotiates with the distributor, setting motion guidelines. The activities, time line, and costs for these activities are in the table below. Cost Duration Activity $15,000 Write book 2 months $50.00 per hour Design book 30 hours $10,000 Illustrate book 1 month $75.00 per hour Negotiate art and design 40 hours 20 hours Create digital files $50.00 per hour Send digital files to printer 15 minutes $50.00 per hour Create color proofs 2 weeks $2,500 MANAGEMENT ACCOUNTING SETTIN Activity Duration Cost Approve color proofs 1 hour $100.00 per hour Rescan and correct proofs 1 week $1,000 Create plates for printing 1day $1,500 Print pages for 5,000 books 4 hours $5,000 Bind pages into 5,000 books 8 hours $3,000 Negotiate terms with dist 1 week $1,200 Ship book to distribution warehouse 2 days $500 $12,000 Market book 1 month Kay wants to develop a standard budget for a book using these average figures. gh competition in the children's book publishing industry, she wants to carve off 15 time and coctc of production Some areas she cannot touch are the artist and wr week $1,200 Ship book to distribution warehouse 2 days $500 Market book 1 month $12,000 Kay wants to develop a standard budget for a book using these average figures. But, given the high competition in the children's book publishing industry, she wants to carve off 15% of the total time and costs of production. Some areas she cannot touch are the artist and writer. These are standard industry fees and really are not open for negotiation. In fact, the cost and time reductions will need to come out of the production process itself, which includes design work. REQUIRED: a. Using the data provided in the table, develop a total elapsed time and total cost for producing 5,000 units of a children's book. b. What the cost of one book in this 5,000-unit run? C. Calculate what 15% of the time and cost for the process is. Can Kay reasonably expect to remove 15% of the time and cost from this process if she cannot change her terms with her writers and illustrators? d. Of the time that is spent, what do you feel is truly value-adding, in other words, something the customer would willingly pay for? Is there enough non-value- added time and activities to meet Kay's 15% goal? Why or why not? Use a busi- ness case structure to present your argument