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:
Support Activity | Driver | Costs per Driver Unit |
---|---|---|
Major refinishes | Hours on job | $20 |
Touchups | Number of visits | $110 |
Communication | Number of calls | $10 |
Builder | Major Refinishes | Touchups | Communication |
---|---|---|---|
Alpha | 80 | 150 | 360 |
Beta | 35 | 110 | 205 |
Gamma | 42 | 115 | 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.
Alpha
$Answer
Beta
$Answer
Gamma
$Answer
Alpha |
Beta |
Gamma |
|
Gross Profits |
$100,000 |
$100,000 |
$100,000 |
Less: Support costs |
|||
Major refinishes |
$1,600 |
$700 |
$840 |
Touchups |
$16,500 |
$12,100 |
$12,650 |
Communications |
$3,600 |
$2,050 |
$1,900 |
Profitability [ANSWERs] |
$78,300 |
$85,150 |
$84,610 |
--Working
Alpha |
Beta |
Gamma |
|
Gross Profits |
100000 |
100000 |
100000 |
Less: Support costs |
|||
Major refinishes |
=20*80 |
=20*35 |
=20*42 |
Touchups |
=110*150 |
=110*110 |
=110*115 |
Communications |
=10*360 |
=10*205 |
=10*190 |
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