North America South America Wholesaler $375,000 25,800 285,000 Wholesaler $590,000 47,200 510,000 Green Energy Global Power $175,000 8,400 144,000 Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $130,000 590 4,550 3,820 6.300 2,230 2,180 2620 95,000 2,145 1,130 6,710 5,980 2.620 1.575
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):
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
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 ) $71 million ($33 million + $38 million) for the wholesale channel and $ 22 million ( $ 12 million + $ 10 million ) $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?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
