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 following the completion of jobs. The following data have been gathered: Support activity Driver Major refinishes Touchups Hours on jobs Number of visits Communication Number of calls Builder Major Refinishes Touchups Communication Alpine Blue Ridge 150 110 Pineola 115 Assuming that each of the three customers produces gross profits of $170,000, calculate the profitability from each builder after taking into account the support activity required for each builder. Activity. Refinishes Touchups Communication Total support costs $ Gross profit Customer profits $ Cost per Driver Unit $200 100 40 $ 80 35 42 Alpine Blue Ridge 0 $ 0 0 0 $ 0 0 $ 0 0 0 0 $ 0 0 $ $ 360 205 190 Pineola 0 0 0 0 0 0
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 following the completion of jobs. The following data have been gathered: Support activity Driver Major refinishes Touchups Hours on jobs Number of visits Communication Number of calls Builder Major Refinishes Touchups Communication Alpine Blue Ridge 150 110 Pineola 115 Assuming that each of the three customers produces gross profits of $170,000, calculate the profitability from each builder after taking into account the support activity required for each builder. Activity. Refinishes Touchups Communication Total support costs $ Gross profit Customer profits $ Cost per Driver Unit $200 100 40 $ 80 35 42 Alpine Blue Ridge 0 $ 0 0 0 $ 0 0 $ 0 0 0 0 $ 0 0 $ $ 360 205 190 Pineola 0 0 0 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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please explain what fromulas and rules were used
Transcribed Image Text:**Customer Profitability Analysis**
HyStandard Services, Inc. provides residential painting services for three home building companies: Alpine, Blue Ridge, and Pineola. The company uses a job costing system to determine the costs for completing each job. This system does not include costs incurred by HyStandard for return touchups and refinishes after the homeowner occupies the home. HyStandard paints each house on a square footage contract price, covering painting as well as any required refinishes and touchups post-occupation. Annually, about one-third of its total revenues and gross profits come from each builder. However, different levels of support are needed from each builder following job completion. The following data outlines this support:
**Support Activity Costs**
- **Major refinishes** are driven by hours on jobs, costing $200 per hour.
- **Touchups** are driven by the number of visits, costing $100 per visit.
- **Communication** is driven by the number of calls, costing $40 per call.
| Builder | Major Refinishes | Touchups | Communication |
|------------|------------------|----------|---------------|
| Alpine | 80 | 150 | 360 |
| Blue Ridge | 35 | 110 | 205 |
| Pineola | 42 | 115 | 190 |
**Profitability Calculation**
Assuming each builder generates gross profits of $170,000, calculate profitability by considering support activities:
| Activity | Alpine | Blue Ridge | Pineola |
|-----------------|--------|------------|---------|
| Refinishes | $0 | $0 | $0 |
| Touchups | $0 | $0 | $0 |
| Communication | $0 | $0 | $0 |
| Total support costs | $0 | $0 | $0 |
| Gross profit | $0 | $0 | $0 |
| Customer profits| $0 | $0 | $0 |
**Explanation**
The costs of support activities vary based on the number of major refinishes, touchups, and communication needs for each builder. This analysis helps determine the net profitability from each customer by offsetting these support costs against gross profits.
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