Question

# Customer Profitability Analysis Roland, Inc. provides residential painting services for three home building companies, Alpha, Beta,...

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

Beta
Gamma

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.

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