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 Wholesaler South America Wholesaler Green Energy Global Power Revenues at list prices $375,000 $590,000 $175,000 $130,000 Discounts from list prices 25,800 47,200 8,400 590 Cost of goods sold 285,000 510,000 144,000 95,000 Delivery costs 4,550 6,710 2,230 2,145 Order processing costs 3,820 5,980 2,180 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.
14-19 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
Wholesaler
South America
Wholesaler Green Energy Global Power
Revenues at list prices $375,000 $590,000 $175,000 $130,000
Discounts from list prices 25,800 47,200 8,400 590
Cost of goods sold 285,000 510,000 144,000 95,000
Delivery costs 4,550 6,710 2,230 2,145
Order
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.
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