Customer Profitability Analysis Roland, Inc. provides residential painting servi
ID: 2562192 • Letter: C
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
$?
Explanation / Answer
Particulars
Alpha
Beta
Gamma
Gross Profit
100000
100000
100000
Less: Support Activities
Major Refinishes
1600
(20*80)
700
(20*35)
840
(20*42)
Touchups
16500
(110*150)
12100
(110*110)
12650
(110*115)
Communication
3600
(10*360)
2050
(10*205)
1900
(10*190)
Profit after Considering Support Activities
78300
85150
84610
Particulars
Alpha
Beta
Gamma
Gross Profit
100000
100000
100000
Less: Support Activities
Major Refinishes
1600
(20*80)
700
(20*35)
840
(20*42)
Touchups
16500
(110*150)
12100
(110*110)
12650
(110*115)
Communication
3600
(10*360)
2050
(10*205)
1900
(10*190)
Profit after Considering Support Activities
78300
85150
84610
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