Distribution Distribution Channel A Channel B Total Revenue $850,000 $910,000 $1,760,000 Customer-level costs 628,000 $222,000 26.1% 532,400 Customer-level operating income Customer-level operating income as a percentage of revenue 1,160,400 $ 599,600 34.07% $377,600 41.5% The company allocates distribution channel costs of marketing and administration as follows: Total Allocation basis Distribution-channel costs Marketing costs $260,000 Channel revenue Administration costs $200,000 Customer-level costs Based on a special study, the company allocates corporate costs to the two channels based on the cor- porate resources demanded by the channels as follows: Distribution Channel A, $45,000, and Distribution Channel B, $55,000. If the company were to close a distribution channel, none of the corporate costs would be saved. 1. Calculate the operating income for each distribution channel as a percentage of revenue after assign- ing customer-level costs, distribution-channel costs, and corporate costs. 2. Should Vocal Speakers close down any distribution channel? Explain briefly including any assumptions that you made. 3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions would it help you take? Required

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Cost-hierarchy income statement and allocation of corporate, division, and channel costs to customers. Vocal Speakers makes wireless speakers that are sold to different customers in two main distribution channels. Recently, the company’s protability has decreased. Management would like to analyze the protability of each channel based on the following information:

Distribution
Distribution
Channel A
Channel B
Total
Revenue
$850,000
$910,000
$1,760,000
Customer-level costs
628,000
$222,000
26.1%
532,400
Customer-level operating income
Customer-level operating income as a
percentage of revenue
1,160,400
$ 599,600
34.07%
$377,600
41.5%
The company allocates distribution channel costs of marketing and administration as follows:
Total
Allocation basis
Distribution-channel costs
Marketing costs
$260,000
Channel revenue
Administration costs
$200,000
Customer-level costs
Based on a special study, the company allocates corporate costs to the two channels based on the cor-
porate resources demanded by the channels as follows: Distribution Channel A, $45,000, and Distribution
Channel B, $55,000. If the company were to close a distribution channel, none of the corporate costs would
be saved.
1. Calculate the operating income for each distribution channel as a percentage of revenue after assign-
ing customer-level costs, distribution-channel costs, and corporate costs.
2. Should Vocal Speakers close down any distribution channel? Explain briefly including any assumptions
that you made.
3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions
would it help you take?
Required
Transcribed Image Text:Distribution Distribution Channel A Channel B Total Revenue $850,000 $910,000 $1,760,000 Customer-level costs 628,000 $222,000 26.1% 532,400 Customer-level operating income Customer-level operating income as a percentage of revenue 1,160,400 $ 599,600 34.07% $377,600 41.5% The company allocates distribution channel costs of marketing and administration as follows: Total Allocation basis Distribution-channel costs Marketing costs $260,000 Channel revenue Administration costs $200,000 Customer-level costs Based on a special study, the company allocates corporate costs to the two channels based on the cor- porate resources demanded by the channels as follows: Distribution Channel A, $45,000, and Distribution Channel B, $55,000. If the company were to close a distribution channel, none of the corporate costs would be saved. 1. Calculate the operating income for each distribution channel as a percentage of revenue after assign- ing customer-level costs, distribution-channel costs, and corporate costs. 2. Should Vocal Speakers close down any distribution channel? Explain briefly including any assumptions that you made. 3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions would it help you take? Required
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