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 South America Wholesaler $590,000 Wholesaler Green Energy Global Power $175,000 Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $375,000 $130,000 25,800 285,000 47,200 8,400 590 510,000 144,000 95,000 6,710 2,230 2,180 4,550 2,145 3,820 5,980 1,130 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. Required 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. 3. Enviro-Tech's management decides to allocate all corporate-sustaining costs to distribution chan- nels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribu- tion 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 manag- ers take? Explain.
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 South America Wholesaler $590,000 Wholesaler Green Energy Global Power $175,000 Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $375,000 $130,000 25,800 285,000 47,200 8,400 590 510,000 144,000 95,000 6,710 2,230 2,180 4,550 2,145 3,820 5,980 1,130 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. Required 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. 3. Enviro-Tech's management decides to allocate all corporate-sustaining costs to distribution chan- nels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribu- tion 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 manag- ers take? Explain.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter10: Forecasting Financial Statement
Section: Chapter Questions
Problem 12PC
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