Customer profitability, customer-cost hierarchy. Orsack Electron

Customer profitability, customer-cost hierarchy. Orsack Electronics has only two retail and two wholesale customers. Information relating to each customer for 2012 follows (in thousands):

Wholesale Customers Retail Customers World North America South America Big Sam Wholesaler Wholesaler Market $150,000 $11

Orsack€™s annual distribution-channel costs are $34 million for wholesale customers and $5 million for retail customers. Its annual corporate-sustaining costs, such as salary for top management and general administration costs, are $61 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 Orsack Electronics were to completely shut down.
Required
1. Calculate customer-level operating income using the format in Exhibit 14-5.
2. Prepare a customer-cost hierarchy report, using the format in Exhibit 14-6.
3. Orsack€™s management decides to allocate all corporate-sustaining costs to distribution channels: $48 million to the wholesale channel and $13 million to the retail channel. As a result, distribution channel costs are now $82 million ($34 million + $48 million) for the wholesale channel and $18 million ($5 million + $13 million) for the retail channel. Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Orsack€™s managers take?Explain.

Distribution
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