Customer Profitability Analysis Hystandard Services, Inc. provides residential p

ID: 2566018 • Letter: C

Question

Customer Profitability Analysis Hystandard Services, Inc. provides residential painting services for three home building companies, Alpine, Blue Ridge, and Pineola, 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 Hystandard for return touchups and refinishes after the homeowner occupies the home. Hystandard paints each house on a square footage contract price, which includes painti occupied. Each year, Hystandard generates about one third of its total revenues and gross profits from each of the three builders. The Hystandard owner has observed that the builders, however, require substantially different levels of support following the completion of jobs. The following data have been gathered: Support Activity Driver Major refinishes Hours on jobs Touchups Communication Number of calls ng as well as all refinishes and touchup s required after the homes are Costs per Driver Unit $ 75 $ 120 $ 30 Number of visits Major Touchups Refinishes Builder ups Communication Apline Blue Ridge Piola 80 35 42 150 110 115 360 205 190 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 Alpine $ Blue Ridge $ Piola $

Explanation / Answer

Answer: Alpine $65200

Blue Ridge $78025

Piola $77350

Statement showing calculation of profitability from each builder:

6000

(80*$75)

2625

(35*$75)

3150

(42*$75)

18000

(150*$120)

13200

(110*$120)

13800

(115*$120)

10800

(360*$30)

6150

(205*$30)

5700

(190*$30)

By multiplying the number of major refinishes, touchups and communications with the respective cost per unit of each support activity, we get the total cost. And, gross profit less the total cost for each builder gives the net profit for each builder.

Particulars Alpine $ Blue Ridge $ Piola $ Major refinishes