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:

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 $80 Touchups Number of visits $110 Communication Number of calls $40

Explanation / Answer

Builder Costs per Driver Unit Major Refinishes Touchups Communication Major Refinishes Touchups Communication Gross profits Total cost Profit Roland's Revenue (1/3) Alpha $80 80 150 360 $6,400 $12,000 $28,800 $100,000 $47,200 $52,800 $17,600 Beta $110 35 110 205 $3,850 $12,100 $22,550 $100,000 $38,500 $61,500 $20,500 Gamma $40 42 115 190 $1,680 $4,600 $7,600 $100,000 $13,880 $86,120 $28,707

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