Cost-hierarchy income statement and allocation of corporate, division, and channel c...

Cost-hierarchy income statement and allocation of corporate, division, and channel costs to customers. Basic Boards makes keyboards that are sold to different customers in two main distribution channels. Recently, the company’s profitability has decreased. Management would like to analyze the profitability of each channel based on the following information:

The company allocates distribution costs to the two channels as follows:

Based on a special study, the company allocates corporate costs to the two channels based on the corporate

resources demanded by the channels as follows: Distribution Channel A, $440,000, and Distribution Channel

B, $500,000. If the company were to close a distribution channel, none of the corporate costs would be saved.

1. Calculate the operating income for each distribution channel as a percentage of revenue after assigning

customer-level costs, distribution costs, and corporate costs.

2. Should Basic Boards close down any distribution channel? Explain briefly.

3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions

would it help you take?