Premier Painting Services, Inc. provides residential painting services for three
ID: 2562604 • Letter: P
Question
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.
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
39
Highwood
125
105
180
Lexington
305
180
175
Assume that each of the three customers produces Gross Profit of $50,000.
The profitability from each builder after taking into account the support activity required for each builder is:
A.
$40,140 Glendale, $35,540 Highwood, $36,540 Lexington
B.
$36,040 Glendale, $40,140 Highwood, $35,540 Lexington
C.
$35,540 Glendale, $40,140 Highwood, $36,040 Lexington
D.
$40,000 Glendale, $65,000 Highwood, $38,000 Lexington
Support Activity
Driver
Cost per Driver Unit
Major refinishes
Hours on jobs
$40
Touch-ups
Number of visits
$60
Communication
Number of calls
$12
Explanation / Answer
Solution:
Cost per driver for major refinishes = $40
Cost per driver for Touch Up = $60
Cost per driver for Communication = $12
Therefore Support Cost for :
Glendale = 70*40 + 125*60 + 39*12 = $10768
Highwood = 125*40 + 105*60 + 180*12 = $13460
Lexington = 305*40 + 180*60 + 175*12 = $25100
Gross Profit from each customer = $ 50000
Therefore Net Profit from:
Glendale = $50000 - $10768 = $39232
Highwood = $50000 - $13460 = $36540
Lexington = $50000 - $25100 = $24900
Note: The options of answers given in questions are not correct.