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. Rod Manufacturing Company produces metal rods for their customers. Its wholesale division is the focus of our analysis.

Management of the company wishes to analyze the profitability of the three key customers in the division and has gathered the following information.

The company allocates wholesale channel costs to customers based on one cost pool and division costs

based on two cost pools as follows. Customer actions do not influence these costs.

1. Calculate customer profitability as a percentage of revenue after assigning customer-level costs, distribution-channel costs, and division costs. Comment on your results.

2. What are the advantages and disadvantages of Rod Manufacturing allocating wholesale-channel and division costs to customers?