14-37 Cost-hierarchy income statement and allocation of corporate, division, and channel costs to customers. Vocal Speakers makes wireless speakers that are sold to different customers in two main dis- tribution channels. Recently, the company's profitability has decreased. Management would like to analyze the profitability of each channel based on the following information: Distribution Distribution Channel A Channel B Revenue Customer-level costs $850,000 $910,000 Total $1,760,000 628,000 532,400 Customer-level operating income $222,000 $377,600 Customer-level operating income as a 26.1% 41.5% 1,160,400 $ 599,600 34.07% percentage of revenue The company allocates distribution channel costs of marketing and administration as follows: Total Allocation basis Distribution-channel costs Marketing costs $260,000 Administration costs $200,000 Channel revenue Customer-level costs Based on a special study, the company allocates corporate costs to the two channels based on the cor- porate resources demanded by the channels as follows: Distribution Channel A, $45,000, and Distribution Channel B, $55,000. If the company were to close a distribution channel, none of the corporate costs would be saved. 1. Calculate the operating income for each distribution channel as a percentage of revenue after assign- ing customer-level costs, distribution-channel costs, and corporate costs. 2. Should Vocal Speakers close down any distribution channel? Explain briefly including any assumptions that you made. 3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions would it help you take?