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:

Support Activity	Driver	Costs per Driver Unit
Major refinishes	Hours on job	$80
Touchups	Number of visits	$110
Communication	Number of calls	$40

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

Answer 1

Working as follows:

Job Costing (Job Cost Sheet)
	Alpha	Beta	Gamma
Revenue	$100,000	$100,000	$100,000
Costs:
Major Refinishes
Alpha [80 *$80]	$6,400	$2,800	$3,360
Beta [35 * $80]
Gamma [42 * $80]
Touchups
Alpha [150 * $110]	$16,500	$12,100	$12,650
Beta [110 * $110]
Gamma [115 * $110]
Communication
Alpha [360 * $40]	$14,400	$8,200	$7,600
Beta [205 * $40]
Gamma [190 * $40]
Total Costs	$37,300	$23,100	$23,610
Profitability	$62,700	$76,900	$76,390

Hence, Gamma has the highest profitability.