Ramish Electronics has only two retail and two wholesale customers. Information relating to each customer for 2013 follows (in thousands):
Ramish’s annual distribution-channel costs are $38 million for wholesale customers and $7 million for retail customers. Its annual corporate-sustaining costs, such as salary for top management and general administration costs, are $65 million. There is no cause-and-effect or benefits-received relationship between any cost allocation base and corporate-sustaining costs. That is, corporate-sustaining costs could be saved only if Ramish Electronics were to completely shut down.
1. Calculate customer-level operating income using the format in Exhibit 16-2.
2. Prepare a customer-cost hierarchy report, using the format in Exhibit 16-13.
3. Ramish’s management decides to allocate all corporate-sustaining costs to distribution channels: $51 million to the wholesale channel and $14 million to the retail channel. As a result, distribution-channel costs are now $89 million ($38 million + $51 million) for the wholesale channel and $21 million ($7 million +$14 million) for the retail channel.
Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Ramish’s managers take? Explain.

  • CreatedJuly 31, 2015
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