Question

M19-18. Customer Profitability Analysis

Elite Services, Inc. provides residential painting services for three home building companies, Brook-side, Edgewater, and Hillrose, 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 Elite for return touchups and refinishes after the homeowner occupies the home. Elite 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, the company generates about one-third of its total revenues and gross profits from each of the three builders. The Elite owner 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 jobs	$ 80
Touchups	Number of visits	$ 130
Communication	Number of calls	$ 25

Builder	Major Refinishes	Touchups	Communication
Brookside	130	250	610
Edgewater	70	210	365
Hillrose	79	215	350

Required

Assuming that each of the three customers produces gross profits of $125,000, calculate the profitability from each builder after taking into account the support activity required for each builder.

Brookside

Edgewater

Hillrose

Answer 1

Assuming that each of the three customers produces gross profits of $125,000, calculate the profitability from each builder after taking into account the support activity required for each builder. $6,850 $82,975 $81,980 Brookside Edgewater Hillrose Explanation: Total support costs Activity Refinishes Edgewater (70 × $80) = $5,600 (210 x $130) = $27,300 (365 x $25) = $9,125 $42,025 Brookside Hillrose (130 × $80) = $10,400 (250 × $130) = $32,500 (610 x $25) = $15,250 $58,150 (79 × $80) = $6,320 (215 x $130) = $27,950 (350 × $25) = $8,750 $43,020 Touchups Communication Total support costs Brookside Edgewater $5,600 27,300 Activity Refinishes Hillrose $6,320 27,950 8,750 43,020 125,000 $81,980 $10,400 32,500 Touchups Communication Total support costs Gross profit Customer profits 9,125 42,025 15,250 58,150 125,000 $6,850 125,000 $82,975