Colorscope, Inc. (Arbitrage) Harvard Case Solution & Analysis

Colorscope, Inc. (Arbitrage) Case Solution

Assumptions about the variability of overhead costs to do a ‘full-cost’ analysis

The analysis determines that calculations of full job metric profitability is more sufficient than allocating the direct expenses. Full cost metric would provide the detail information of the jobs done in an organization whereas the Direct cost of jobs does not provide us the information of indirect overhead like utilities, Rent, and other expenses on a particular job.

colorscope case solution

colorscope case solution

The assumption about the variability of overhead costs when using a full cost is that the overhead cost would change in percentage with changes in the overall cost, given the expected choice of the cost driver. The different selection of cost driver would result in different behavior in the overhead cost therefore in this case labor hour is the best choice of cost driver because it is the most applicable to the nature of the operation in addition to this variable cost also increase when output costs are increases like transportation cost and other expenses.(Lyon)

Financial consequence of Reworks

Reworks would affect the financial estimation of the jobs and calculations could vary from the previous results. It may indicate higher result because of change in different components of jobs and these results are determined after the calculations in excel spreadsheet.

Furthermore, reworks comprise more work hours, higher work rent and advanced material expenses and depreciation, the result of rework would offend Color scope economically in case they don't charge enough cash for that. Colors cope may reduce those reworks that are just because of the adjustments in the past stage. Management does not charge clients for initial rework. This can attract some customers, Moreover in the meantime; this can likewise bring about pointless money related loss of the organization. At the point when clients are satisfied by Color scope's primary work, they may even now exploit the change and add more costs to the organization bill. One thing Color scope can do is rewarding customers who never ask for a rework, for example, coupon or money back, so clients may not ask for a rework that zero-rework prize may sufficiently reduce rework costs and appeal more clients to return for a new variety of items.(John Cromell, 2016).................

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