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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?

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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?
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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