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.

Required

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?

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Revenue Customer-level costs Customer-level operating income Customer-level operating income percentage Customer A 1,054,826 675,378 379,448 35.973% Customer B Customer C 1,544,680 2,210,162 951,669 1,517,895 593,011 38.391% 692,267 31.322% Other Customers 480,332 266,058 214,274 44.610% Division 5,290,000 3,411,000 1,879,000 35.5%