Enviro-Tech has only two retail and two whole-sale customers. Information relating to each customer for 2020 follows (in thousands): Wholesale Customers North America Retail Customers South Green Global America Wholesaler Energy Power Wholesaler Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Costs of sales visits $375,000 25,800 285,000 $590,000 47,200 510,000 $175,000 8,400 144,000 2,230 2,180 2,620 $130,000 590 4,550 3,820 6,300 6,710 5,980 2,620 95,000 2,145 1,130 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. 2. 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 ($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. 3. How might Enviro-Tech use the new cost information from its activity-based costing system to better manage its business?
Enviro-Tech has only two retail and two whole-sale customers. Information relating to each customer for 2020 follows (in thousands): Wholesale Customers North America Retail Customers South Green Global America Wholesaler Energy Power Wholesaler Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Costs of sales visits $375,000 25,800 285,000 $590,000 47,200 510,000 $175,000 8,400 144,000 2,230 2,180 2,620 $130,000 590 4,550 3,820 6,300 6,710 5,980 2,620 95,000 2,145 1,130 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. 2. 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 ($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. 3. How might Enviro-Tech use the new cost information from its activity-based costing system to better manage its business?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Enviro-Tech has only two retail and two whole-sale customers. Information relating to each customer
for 2020 follows (in thousands):
Wholesale Customers
Retail Customers
South
North America
Green
Global
America
Wholesaler
Energy
Power
Wholesaler
$590,000
47,200
Revenues at list prices
Discounts from list prices
Cost of goods sold
Delivery costs
Order processing costs
Costs of sales visits
$375,000
25,800
285,000
4,550
3,820
6,300
$175,000
8,400
144,000
2,230
2,180
2,620
$130,000
590
510,000
6,710
5,980
2,620
95,000
2,145
1,130
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.
2. 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 ($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.
3. How might Enviro-Tech use the new cost information from its activity-based costing system to
better manage its business?
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