Customer Profitability Analysis Roland, Inc. provides residential painting servi

Question

Customer Profitability Analysis
Roland, Inc. provides residential painting services for three home building companies, Alpha, Beta, and Gamma, and it uses a job costing system for determining the costs for completing each job. The job cost system does not capture any cost incurred by Roland for return touchups and refinishes after the homeowner occupies the home. Roland paints each house on a square footage contract price, which includes painting as well as all refinishes and touchups required after the homes are occupied. Each year, Roland generates about one-third of its total revenues and gross profits from each of the three builders. Roland has observed that the builders, however, require substantially different levels of support following the completion of jobs. The following data have been gathered:

(a) Assuming that each of the three customers produces gross profits of $100,000, calculate the profitability from each builder after taking into account the support activity required for each builder.

Alpha

Beta

Gamma

Support Activity Driver Costs per Driver Unit Major refinishes Hours on job $60 Touchups Number of visits $130 Communication Number of calls $40

Explanation / Answer

Profitability from eacg builder:

Particulars Alpha Beta Gamma Gross profit(X) $100,000.00 $100,000.00 $100,000.00 Major refinishes(A) 80 35 42 Cost per refinish(B) $60.00 $60.00 $60.00 Total cost of major refinishes C = A*B $4,800.00 $2,100.00 $2,520.00 Touch ups(D) 150 110 115 Cost per touchup(E )] $130.00 $130.00 $130.00 Total cost of touchups (F) = D*E $19,500.00 $14,300.00 $14,950.00 Communication (G) 360 205 190 Cost per communication(H) $40.00 $40.00 $40.00 Total cost of communication (I) = (G) *(H) $14,400.00 $8,200.00 $7,600.00 Total cost of support (Y)=C+F+I $38,700.00 $24,600.00 $25,070.00 Profit after support cost X-Y $61,300.00 $75,400.00 $74,930.00

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