Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2017 follows (in thousands): Wholesale Customers Retail Customers North America South America Wholesaler $590,000 Wholesaler Green Energy Global Power $175,000 Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $375,000 $130,000 25,800 285,000 47,200 8,400 590 510,000 144,000 95,000 6,710 2,230 2,180 4,550 2,145 3,820 5,980 1,130 6,300 2,620 2,620 1,575 Enviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail customers. The company's annual corporate-sustaining costs, such as salary for top management and general- administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost- allocation base and corporate-sustaining costs. That is, Enviro-Tech could save corporate-sustaining costs only if the company completely shuts down. Required 1. Calculate customer-level operating income using the format in Exhibit 14-3. 2. Prepare a customer-cost hierarchy report, using the format in Exhibit 14-6. 3. Enviro-Tech's management decides to allocate all corporate-sustaining costs to distribution chan- nels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribu- tion channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and $22 million ($12 million + $10 million) for the retail channel. Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Enviro-Tech's manag- ers take? Explain.
Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2017 follows (in thousands): Wholesale Customers Retail Customers North America South America Wholesaler $590,000 Wholesaler Green Energy Global Power $175,000 Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $375,000 $130,000 25,800 285,000 47,200 8,400 590 510,000 144,000 95,000 6,710 2,230 2,180 4,550 2,145 3,820 5,980 1,130 6,300 2,620 2,620 1,575 Enviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail customers. The company's annual corporate-sustaining costs, such as salary for top management and general- administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost- allocation base and corporate-sustaining costs. That is, Enviro-Tech could save corporate-sustaining costs only if the company completely shuts down. Required 1. Calculate customer-level operating income using the format in Exhibit 14-3. 2. Prepare a customer-cost hierarchy report, using the format in Exhibit 14-6. 3. Enviro-Tech's management decides to allocate all corporate-sustaining costs to distribution chan- nels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribu- tion channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and $22 million ($12 million + $10 million) for the retail channel. Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Enviro-Tech's manag- ers take? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information
relating to each customer for 2017 follows (in thousands):
Wholesale Customers
Retail Customers
North America
South America
Wholesaler
Wholesaler
Green Energy
Global Power
Revenues at list prices
Discounts from list prices
Cost of goods sold
Delivery costs
Order processing costs
$375,000
25,800
$590,000
$175,000
$130,000
47,200
8,400
590
285,000
510,000
144,000
95,000
2,230
2,180
4,550
6,710
2,145
3,820
5,980
1,130
Cost of sales visit
6,300
2,620
2,620
1,575
Enviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail
customers. The company's annual corporate-sustaining costs, such as salary for top management and general-
administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost-
allocation base and corporate-sustaining costs. That is, Enviro-Tech could save corporate-sustaining costs only if the
company completely shuts down.
1. Calculate customer-level operating income using the format in Exhibit 14-3.
2. Prepare a customer-cost hierarchy report, using the format in Exhibit 14-6.
3. Enviro-Tech's management decides to allocate all corporate-sustaining costs to distribution chan-
nels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribu-
tion channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and
$22 million ($12 million + $10 million) for the retail channel. Calculate the distribution-channel-level
operating income. On the basis of these calculations, what actions, if any, should Enviro-Tech's manag-
ers take? Explain.
4. How might Enviro-Tech use the new cost information from its activity-based costing system to better
manage its business?
Required
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