Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and...

Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2013 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 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 channels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribution channel costs are now $71million1$33 million + $38 million2 for the wholesale channel and $22 million1$12 million + $10 million2 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.

4. How might Enviro-Tech use the new cost information from its activity-based costing system to better manage its business?