Chapter 12, Problem 12.32E

Identifying and managing unused capacity (continuation of 12-29). Refer to Exercise 12-29.

1. 1. Calculate the amount and cost of unused architectural support capacity at the beginning of 2017, based on the number of jobs actually done in 2017.

Required

1. 2. Suppose Compton can add or reduce its architectural support capacity in increments of 10 units. What is the maximum amount of costs that Compton could save in 2017 by downsizing architectural support capacity?
2. 3. Compton, in fact, does not eliminate any of its unused architectural support capacity. Why might Compton not downsize?

12-29 Strategy, balanced scorecard, service company. Compton Associates is an architectural firm that has been in practice only a few years. Because it is a relatively new firm, the market for the firm’s services is very competitive. To compete successfully, Compton must deliver quality services at a low cost. Compton presents the following data for 2016 and 2017.

	2016	2017
1. Number of jobs billed	40	50
2. Selling price per job	$32,000	$30,000
3. Architect labor-hours	24,000	27,000
4. Cost per architect labor-hour	$35	$36
5. Architect support capacity (number of jobs the firm can do)	60	60
6. Total cost of software-implementation support	$168,000	$180,000
7. Software-implementation support-capacity cost per job (row 6 ÷ row 5)	$2,800	$3,000

Architect labor-hour costs are variable costs. Architect support costs for each year depend on the Architect support capacity that Compton chooses to maintain each year (that is, the number of jobs it can do each year). Architect support costs do not vary with the actual number of jobs done that year.

1. 1. Is Compton Associate’s strategy one of product differentiation or cost leadership? Explain briefly.

Required

1. 2. Describe key measures you would include in Compton’s balanced scorecard and your reasons for doing so.