Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2012 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.
Required
1. Calculate customer-level operating income using the format in Exhibit 7-7.
Exhibit 7-7
Customer-Profitability Analysis for Four Wholesale Channel Customers of Astel Computers for 2012

2. Prepare a customer-cost hierarchy report, using the format in Exhibit 7-10.
Exhibit 7-10
Income Statement of Astel Computers for 2012 Using the Cost Hierarchy

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

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Wholesale Customers Retail Customers North America South America Global Green Energy Wholesaler Wholesaler Power Revenues at list prices Discounts from list prices Cost of goods sold Delivery costs Order processing costs Cost of sales visit $590,000 47,200 510,000 $375,000 25,800 285,000 4,550 3,820 6,300 $175,000 8,400 144,000 2,230 $130,000 590 95,000 2,145 1,130 1,575 6,710 5,980 2,620 2,180 2,620 Home Insert Page Layout Formulas Data Review View A A в 2 Revenues at list price 3 Price discount 4 Revenues $33,000,000 $27,500,000 $5,500,000 750,000 $4,400,000 3,000,000 1,250,000 30,000,000 26,250,000 4,750,000 4,400,000 5 6 Cost of goods solda 20,400,000 17,000,000 3,400,000 2,720,000 8 Gross margin 9,600,000 9,250,000 1,350,000 1,680,000 10 Customer-level operating costs 11 Marketing Costs 12 Sales orders 13 Customer visits 14 Distribution Costs 15 Product handling 16 Regular shipments® 17 Rush shipments 18 Customer Service Costs 1,350,000 840,000 1,125,000 560,000 675,000 280,000 337,500 140,000 900,000 150,000 750,000 500,000 120,000 750,000 375,000 150,000 125,000 25,000 100,000 15,000 19 Customer service9 720,000 600,000 120,000 96,000 20 21 Total customer-level operating costs 4,685,000 3,560,000 1,700,000 858,500 22 $ 4,915,000 $ 5,690,000 $ (350,000) $ 821,500 23 Customer-level operating income 24 $680 x 30,000; 25,000; 5,000; 4,000 b$1,125 × 1,200; 1,000; 600; 300 ° $5,600 x 150; 100; 50; 25 d$15 x 60,000; 50,000; 10,000: 25 8,000 °$1,250 x 600; 400; 300; 120 $5,000 x 25; 5; 20; 3 9$24 x 30,000; 25,000; 5,000; 4,000