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A. PRELIMINARY
In company is likely to have customers who have a specific request to the
order. Therefore is necessary to know about the customer profitability analysis
based ABM method for determine the activity, the costs and benefits to
following the customer request. Activity Based Management (ABM) is a
system that focuses the attention
n of the management to increase customer value and profits to be earned
and using ABC information to eliminate non-value added cost and activities.
ABM emphasizes both on the product costing and process value analysis.
Some of the specific uses of ABM in organization, management can identify
and measure quality costs of the product. And then, one of the components
that support the success of ABM is just in time. Just in time is a system that
focuses on the elimination of waste activity by producing products in
accordance with constumer demand and only buy materials according to
production requirement.
B. Profile of Company
Colorscope, Inc
Colorscope,Inc. is a small firm in the graphic arts industry and the founder
is Andrew Cha. On 1967 Andrew Cha immigrated to the USA for a better life.
At the beginning, of its establishment the company provides special effects
photography laboratory to companies advertising local in Southen California.
Along with the growing reputation of Andrew Cha, Colorscope also
experienced an increase in business and can earn income $5 million dollars on
1988. Colorscope begin to served agency giants such as Saatchi & Saatchi,
Grey Advertising, and J. Walter Thompson, large retailing and entertainment
companies such as The Walt Disney Company.
In 1988, R. R. Donnelley was approached to Andrew Cha and interested in
acquiring Colorscope,Inc. But after considering his options and his belief in
the potential of the business, and Andrew Cha dissatisfied with several of the
contingency and non-compete clauses built into the agreement so eventually
decided not sale his company. After taking the decision, there is a trend change
for significant in field of graphic art and make there are price pressures from
competitors using cheaper hardware but had the ability to layout and better
color correction. The impact of these trends make colorscope was forced to
lower their selling prices to keep up with market demands.
1200
1000
800
600
Colorscope
400
Service-Bureau
200
0
1991
1992
1993
1994
1995
allocated to the entire process of order. The allocation cost process is tracking
by using the allocation of working hours of each activity.
Table 1.1. Overhead Rate
DESCRIPTION
Wages
Depreciation
Rent
Others
Total Overhead
> Labor hour
> OH rate / hour
Floor space in sq. ft.
QUALITY
CONTRO
L
$11.000
$500
$1.000
$1.311
$13.811
160
JOB
PREPARATION
$8.000
$500
$2.000
$1.311
$11.811
160
SCANNING
$32.000
$25.000
$2.000
$5.246
$64.246
640
$73,82
$100,38
$72,26
$148,20
$86,32
1000
1000
4000
2000
500
ASSEMBLY OUTPUT
$64.000
$10.000
$10.000
$14.000
$8.000
$4.000
$10.492
$1.639
$92.492
$29.639
1280
200
IDLE
TOTAL
$125.000
$50.000
$13.000 $30.000
$20.000
$13.000 $225.000
2440
6500
From the calculate of overhead rate in table 1.1. , and then the next step
calculated of each total cost and the profit can get from each order of customers.
For more detail can see in table 1.2.
Table 1.2. Profotability Analysis by Job
Job
Customer
Revenue
Materials
61001
61002
61003
61101
61102
61201
61202
61203
61204
61301
61401
61402
61403
10
10
10
11
11
12
12
12
12
13
14
14
14
$9.600
$9.600
$23.000
$12.000
$11.000
$11.000
$23.000
$22.000
$20.000
$50.000
$7.800
$8.000
$8.000
$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
Job
Customer
Revenue
Materials
61404
61405
61501
61502
61601
14
14
15
15
16
$9.000
$9.800
$11.000
$11.000
$20.000
$2.100
$2.000
$2.200
$3.600
$3.300
Gross
margin
$4.200
$6.100
$18.500
$10.200
$9.500
$9.500
$19.700
$18.600
$16.800
$37.000
$6.000
$4.900
$4.100
Gross
margin
$6.900
$7.800
$8.800
$7.400
$16.700
15000
61602
61603
61701
61702
61801
61901
61902
62001
16
16
17
17
17
19
19
20
$2.000
$1.400
$8.000
$10.000
$4.000
$2.000
$12.000
$0
Idle time
Total
Rent unused floor space
Net profit
$600
$1.000
$2.100
$2.500
$1.600
$1.700
$2.200
$200
$1.400
$400
$5.900
$7.500
$2.400
$300
$9.800
-$200
$1.607
$1.827
$5.973
$6.290
$1.753
$1.751
$6.336
$553
Explanation
61202
61203
61204
61601
61003
61101
61102
61201
61902
61501
61405
61702
61401
61404
61801
61502
Job
61701
61602
62001
61002
61402
61603
61901
$10.163
$8.416
$7.278
$7.275
$5.487
$5.193
$4.637
$4.176
$3.464
$2.640
$1.958
$1.210
$975
$771
$647
$417
Net profit (Loss)
($73)
($207)
($753)
($1.153)
($1.405)
($1.427)
($1.451)
Most Profitable
Explanation
($207)
($1.427)
($73)
$1.210
$647
($1.451)
$3.464
($753)
($21.840)
$28.200
$13.000
$15.200
61403
($1.512)
61301
($2.554)
61001
($4.132)
Least Profitable
Idle time
($21.840)
In table 1.3. have some explanation about Colorscope have cost of idle
time amount $21.840 and rent cost amount of $13.000, so Colorscope have excess
cost amount $34.840. And then, from the table 1.3. we also know about some
jobs order can get more profit or get loss. In total, only 16 out of 26 jobs were
profitable. For example job order 61201 is most profitable and least profitable is
job order 61001. This is due to the cost of rework. In Colorscope, Inc. have two
type of rework cost, the first is rework due to changes in the specifications of the
customer and rework due to errors. The most rework costs for companies is
rework due to changes in the specifications of the customer. Total cost rework due
to change in specification by customer amount $ 17.454 and total cost quality
control initiated rework of house errors amount $ 10.065.
Table 1.4. Rework Due To Change In Specification by Customer
JOB
61001
61002
61301
61502
61801
61901
JOB
PREPARATION
0
0
$147,64
$73,82
0
$73,82
$722,59
$433,56
$722,59
$578,07
$216,78
$289,04
$592,79
$592,79
$296,39
$148,20
$148,20
0
QUALITY
MATERIAL
CONTROL
$172,64
$2.700
$258,97
$1.100
$172,64
$1.000
0
$1.500
0
$1.000
0
$1.000
TOTAL
COST
$5.794
$3.188
$2.841
$2.701
$1.465
$1.46
$17.454
JOB
PREPARATION
$73,82
$73,82
$148,20
$296,39
$296,39
$148,20
QUALITY
MATERIAL
CONTROL
$86,32
$1.000
$172,64
$1.000
$86,32
$1.000
$500
TOTAL
COST
$1.898
$3.528
$3.398
$1.239
$10.065
had to be reworks,
customers must incur additional costs in accordance with the desired changes that
do not affect the cost quality of products. The second for resolve rework due to
errors, Colorscope must check their machinery and equipment before to use or
update their equipment. So as to shorten the time to rework and can finish on
time. Colorscope must also improve transfer pricing on its products, which
colorscope give the same price per page for each customer even though the
customer has a different request. For more detail can see in table 1.6.
Table 1.6. Minimum Price for Order With Rework
JOB
PRICE/
PAGE
PAGES
61001
61002
61402
61403
61603
$600
$600
$500
$500
$350
16
16
16
16
4
FIRST
OH
COST
$8.332
$7.253
$6.305
$5.612
$1.827
REWORK
COST
MINIMUM
PRICE
$5.794
$3.188
$3.528
$3.398
$1.239
$14.126
$10.441
$9.833
$9.010
$3.066
PRICE/PAGE
AFTER
REWORK
$883
$653
$615
$563
$767
E. Conclusion
The technology developments are so quick to bring a strong impact on the
sustainability of Colorscope, Inc. in facing the competition. So the company
must follow the development of technology. And other side Colorscope have
problem regarding rework costs resulting from a change in the specifications
of customer orders and error in quality control. Therefore, Colorscope require
policies to charge to the customer for minimize the rework cost and strategy
about transfer pricing