Reference no: EM132515603

Point 1: Premier Painting Services, Inc. provides residential painting services for three home building companies, Glendale, Highwood, and Lexington, 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 Premier for return touch-ups and refinishes after the homeowner occupies the home. Premier paints each house on a square footage contract price, which includes painting as well as all refinishes and touch-ups required after the homes are occupied.

Point 2: Each year, the company generates about one-third of its total revenues and gross profits from each of the three builders. The Premier 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    Cost per Driver Unit  Major refinishes

Hours on jobs                            $40

Touch-ups

Number of visits                              $60

Communication

Number of calls                               $12

Builder                    Major Refinishes                      Touch-ups                    Communication

Glendale                        70                                   125                               305

Highwood                          35                               105                                 180

Lexington                           39                                 180                                175

• Assume that each of the three customers produces Gross Profit of $50,000.

Question 1: The profitability from each builder after taking into account the support activity required for each builder is