Enviro-Tech’s management decides to allocate all corporate-sustaining costs to distribution channels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribution channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and $22 million 1$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 managers take? Explain. Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two whole-sale customers. Information relating to each customer for 2017 follows (in thousands):Wholesale CustomersRetail CustomersNorth AmericaSouth AmericaWholesalerWholesalerRevenues at list pricesDiscounts from list pricesCost of goods soldDelivery costsOrder processing costs$375,00025,800285,0004,5503,8206,300$590,00047,200510,0006,710Green Energy Global Power$175,0008,400144,0002,2302,1802,620$130,00059095,0002,1451,1301,5755,9802,620Cost of sales visitEnviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million forretail customers. The company's annual corporate-sustaining costs, such as salary for top managementand general-administration costs are $48 million. There is no cause-and-effect or benefits-received rela-tionship between any cost-allocation base and corporate-sustaining costs. That is, Enviro-Tech could savecorporate-sustaining costs only if the company completely shuts down.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Enviro-Tech’s management decides to allocate all corporate-sustaining costs to distribution channels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribution channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and $22 million 1$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 managers take? Explain.

Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two whole-
sale customers. Information relating to each customer for 2017 follows (in thousands):
Wholesale Customers
Retail Customers
North America
South America
Wholesaler
Wholesaler
Revenues at list prices
Discounts from list prices
Cost of goods sold
Delivery costs
Order processing costs
$375,000
25,800
285,000
4,550
3,820
6,300
$590,000
47,200
510,000
6,710
Green Energy Global Power
$175,000
8,400
144,000
2,230
2,180
2,620
$130,000
590
95,000
2,145
1,130
1,575
5,980
2,620
Cost of sales visit
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 rela-
tionship 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.

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