Stone Mason Corp. (SMC) is a subcontractor that specializes in installing curbs, gutters, and driveways for commercial and residential development projects. It serves two types of customers, custom home builders and large general contractors. SMC obtains work from the general contractors via a competitive bidding process; its success rate has been 50 percent. It has long-term relationships with several custom home builders, and bidding with them has been 92 percent successful. Use this information to complete the following requirements. You must make judgments of how to assign bidding costs and whether to assign general and administrative costs.

Custom General Annual Activities and Resources Total Home Builders Contractors Bids:sulbomitted—jesiclenttalies sess eteey estes -enseessee 32 22 10 Bids submitted—COMmMelCial ........ccccccereeeeteeeeseteeeeees 13 S 10 successful bids—residentiall...0.. eres. saceeetesreecconesri bs 24 20 4 Successful DIDS—COMMEICIAl..........cccccesecetseeeeeeeees 9 3 6 DSUCCESSMATS Res, fatores sete atrapene taancse acetone Oita Memees enenaae 92% 50%

Average direct cost of residential jOD .........cccceee $10,500 $410,000 Average direct cost of commercial job... $45,000 $250,000 VOTAGES Man KUDLON elk OO Stetey tun mineerressin meacnn irnarte : 100% 50%

ContractimanagementiCOStaacat mae. erence $800,000 Contract management effort.......ciieeseteccdeereeeeseedee 100% 20% 80%

Generalaciministhation(COStivec..etncsscscee ere $410,000 BiGGINORCOS te rcs iee greecmt asne E e $630,000 Required

a. Estimate SMC’s customer profitability.

b. Do you have any reservations about the accuracy of this analysis? If so, discuss them.