Activity Based Costing of City Services Essay
Activity Based Costing of City Services
Required: 1. The new mayor became elected with the pledge of rapid privatization. But instead of downright privatization, his first action was to ask for cost estimation of public service. Why do you think he asked for cost estimation instead of privatizing the public service right away? Was it a sensible action?
2. Existing DOT employees were allowed to bid against private businesses. Was it a sensible decision? For example, they could have been just fired.
3. How well did the project team implement ABC for estimating the cost of pothole filling? Do you agree with the manner in which they treated equipment cost and excess capacity?
4. Should the city have allowed the municipal employees to see the ABC estimates and given them the opportunity to reduce their costs?
5. Calculate the bids the city workers will issue for fixing potholes in the Northwest and Northeast quadrants.
6. The new mayor wants to continue to outsource city services through competitive bidding. Do you think that’s a good idea? What are the concerns the city should consider?
Instruction: 1. What was the value statement of Colorscope to customers? In other words, why would any customer go to Colorscope instead of other large printers?
We are going to analyze cost structure of Colorscope using a departmental cost allocation method. This is a two stage system. First categorize cost to different production centers (= departments = Job prep, Scanning, Assembly, Output, and Quality). Then allocate cost in each center to a job in the second stage.
2. Complete the following first stage allocation. Job prep Wages $8,000 Depreciation Rent Others* Total MOH DLH POHR Floor space * allocated by DLH Scanning Assembly Output Quality Idle Total
3. Analyze the job profitability by filling out the following sheet with dollars. (Hint: Add labor cost and allocated MOH.) Job # 61001 61002 Revenue Materials Job prep $9,600 Scanning Assembly Output Quality Net profits
62001 Idle Total Profit Then summarize your findings.
4. Analyze the rework cost by filling out the following sheet for the jobs with a rework. Job # 61001 61002 Materials Job prep Scanning Assembly Output Quality Net profits
62001 Total What is the financial consequence of reworks? (Hint: compare the profits before and after reworks.)
5. What would you recommend to Colorscope Inc. to improve their business?