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015 WMP6052 CD (Group 2) AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHA
V KUMAR JAIN BIKRAMJIT DE BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHU
Situation Description Wages Depreciation Rent Others Total Overhead Labour hours
Overhead Rate or Absorption Rate or Driver Rate (Rate / Labour Hour) Floor Spac
e Job Preparation $ 8,000 $ 500 $ 2,000 $ 1,311 $ 11,811 160 $ $ $ $ $ Scanning
32,000 25,000 2,000 5,246 64,246 640 $ $ $ $ $ Assembly 64,000 10,000 8,000 10,4
92 92,492 1,280 $ $ $ $ $ Output 10,000 14,000 4,000 1,639 29,639 200 Quality Co
ntrol Idle Space $ 11,000 $ 500 $ 1,000 $ 13,000 $ 1,311 $ 13,811 $ 13 ,000 160
$ $ $ $ $ Total 125,000 50,000 30,000 20,000 225,000 2,440 $ 74 1,000 $ 100 1,00
0 $ 72 4,000 $ 148 2,000 $ 86 500 $ 6,500 92 15,000 Note: A simplified activitybased costing system was used to measure customer pr ofitability. Cost of Activi
ty Drivers: Output > Scanning > Assembly > QC > Job Preparation
Complications Because Colorscope was not the market leader, its only option is t
o adopt a strategy emphasizing: 1. cost containment, and 2. quality control stra
tegy
Questions
Based on the information provided in the case, the firm has to decide on questio
ns such as: Customer pricing, and Process improvement decisions Was there need
for incremental or radical change in its operations? Considering the size of the
operations and cost of rework, it needed to control costs while maintaining qua
lity and to manage customer profitability. The problem required i nternal qualit
y management and closer interaction with customers. Pricing Strategy should be i
n sync with its Operational Costing
Analysis COLORSCOPE is making money with one group of customers and losing money
with ano ther large group of customers.
Analysis Colorscope found that many customers were unprofitable, and a few custo
mers were responsible for most of the firm's profit s (80-20 Rule) On further an
alysis, it was determined that rework, initiated thr ough internal defects or by
customers, formed a major cost item
Analysis Customer # Job Revenue Material Expenses Gross Margin Net Profit Net Pr
ofit (with error (with rework) demanded rework)2 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ 4,200 6,100 18,500 10,200 9 ,500 9,500 19,700 18,600 16,8
00 37,000 6,000 4,900 4,100 6,900 7,800 8,800 7,400 16,700 1,400 400 5,900 7,500
2,400 300 9,800 (200) 2 0,200 $ (1,038) $ 936 $ 5, 487 $ 5,193 $ 4,637 $ 4,176
$ 10,163 $ 8,416 $ 7,278 $ (713) $ 975 $ (1,405) $ ( 1,512) $ 771 $ 1,958 $ 2,64
0 $ 1,618 $ 7,275 $ (207) $ (1,427) $ (73) $ 1,210 $ 1,112 $ (988) $ 3,464 $ (75
3) $(21,840) 37,35 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (4,132)
(1,153) 5,487 5,193 4,637 4,176 10,163 8,416 7,278 ( 1,655) 975 1,124 887 771 1
,958 2,640 417 7,275 (207) (687) (73) 1,210 647 (1,451 ) 3,464 (753) (21,840) 37
,35 Net Profit (with error rework + demanded rework) $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ $ (4,132) (1,153) 5,487 5,193 4,637 4,176 10,163 8,416
7,27 8 (2,554) 975 (1,405) (1,512) 771 1,958 2,640 417 7,275 (207) (1,427) (73)
1,210 647 (1,451) 3,464 (753) (21,840) 3 ,765 Net Profit (without any rework) $
315,200 $ 75,000
Customer 10 Customer 10 Customer 10 Customer 11 Custom
tomer 12 Customer 12 Customer 12 Customer 12 Customer 13 Customer 14 Customer 14
Customer 14 Cust omer 14 Customer 14 Customer 15 Customer 15 Customer 16 Custom
er 16 Customer 16 Customer 17 Customer 17 Customer 18 Customer 19 Customer 19 Cu
stomer 10 61001 61002 61003 61101 61102 61201 61202 61203 6120 61301 61 01 61 02
61 03 61 0 61 05 61501 61502 61601 61602 61603 61701 61702 61801 61901 61902 62
001 Idle T ime Capacity $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 9,60
0 9,600 23,000 12,000 11,000 11,000 23,000 22,000 20,000 50,000 7,800 8,000
8,000 9,000 9,800 11,000 11,000 20,000 2,000 1,400 8,000 10,000 4,000 2,000 12,0
00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,400 3,500 4,500 1,800
1,500 1,500 3,300 3,400 3,200 13,000 1,800 3,100 3,900 2 ,100 2,000 2,200 3,600
3,300 600 1,000 2,100 2,500 1,600 1,700 2,200 200 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ $ (1,038) 936 5,487 5,193 4,637 4,176 10,163 8,416 7,278 1
86 975 1,124 887 771 1,9 58 2,640 1,618 7,275 (207) (687) (73) 1,210 1,112 (988)
3,464 (753) (21,840) 28, 200
Analysis NO REWORK REWORK (Self-Error) REWORK (On Demand) REWORK (All Types)
NO REWORK 1. Colorscope has to come up with a new pricing policy, offering disco
unts propo rtionate to the number of color images ordered. 1. Client 14 could ha
ve been the 4th most profitable customer if we had reduced self-committed errors
. Colorscop e should initiate quality improvement techniques, an incremental cha
nge, to limi t in-house errors. 1. Client 10 could have been the 5th or better c
ustomer if we had charged for repeated revisions. Implement new technology to ge
t great price advantage. 1. Colorscope can consider additional stock issues or b
ond issues to raise funds for making this investment. 2. Alternatively, the mana
gement can co nsider yielding a stake in the company to one of the large printin
g companies li ke R.R. Donnelley Sons Co REDUCE Self-Error CHARGE Client-Revisio
ns REWORK (All Types)
Defensive Strategy 1. Colorscope has to learn not to put all eggs in one basket,
meaning that it sh ould not allow one customer account for more than 30% of its
business. 2. It sho uld try to retain the currently profitable clients by provi
ding competitive pric ing and specialized attention to the clientdeliverable. Ag
gressive Strategy 1. Colorscope managers should probably start an aggressive mar
keting campaign to recruit new clients
IDLE TIME 1. Colorscope has to change its operation sequence to reduce idle time
during as sembly. Since the company is following a sequential processing of job
s, a high i dle time for assembly means that scanning is taking lots of time 2.
Actually, it may make no sense to install the technology currently used by rival
s if a new t echnique is in the making. Colorscope can consider purchasing the t
echnology of the next generation and thus be the first in the new field 1. Color
scope manager s should probably start some allied service s to leverage the spac
e (if they wou ld require it in future) or sell the unutilized portion to reduce
their overhead s IDLE SPACE
THANK YOU Group # WMP6004 WMP6005 WMP6007 WMP6008 WMP6009 WMP6012 WMP6015 WMP605
2 CD (Group 2) AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHAV KUMAR JA
IN BIKRAMJIT DE BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHU