Question

E5-5A. Customer Profitability Analysis HyStandard Services, Inc. provides residential painting services

for three home building companies, Alpine, Blue Ridge, and Pineola, 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 HyStandard for return touchups and refinishes after the homeowner occupies the home.

HyStandard 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 HyStandard

owner has observed that the builders, however, require substantially different levels of support follow-

ing the completion of jobs. The following data have been gathered:

Support Activity Driver Cost per Driver Unit

Major refinishes . . . . . . . . . . . . . . . Hours on jobs $60

Touchups . . . . . . . . . . . . . . . . . . . . Number of visits $100

Communication . . . . . . . . . . . . . . . Number of calls $40

Builder: Major Refinishes/ Touchups/ Communication

Alpine . . . . . . . . . . . . 80 150 360

Blue Ridge . . . . . . . . 35 110 205

Pineola . . . . . . . . . . . 42 115 190

Required

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.

Answer 1

	Alpine	Blue ridge	Pineola
Gross profit ($)	100000	100000	100000
Less: Support costs
Major refinishes:
Number of hours on job	80	35	42
Cost of major finish (@ 60$ per hour)	4800	2100	2520
Touchups:
Number of visits	150	110	115
Cost of touchups (@ 100$ per visit)	15000	11000	11500
Communication:
Number of calls	360	205	190
Cost of communications (@ 40$ per call)	14400	8200	7600
Total support costs	34200	21300	21620
Profits = Gross profit Less support costs	65800	78700	78380