EX.15-19 CUSTOMER PROFITABILITY, CUSTOMER-COST HIERARCHY.

Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2020 follows (in thousands):

	WHOLESALE CUSTOMERS				RETAIL CUSTOMERS
		NA Wholesaler	SA Wholesaler		Green Energy	Global Power
Revenues at list prices		$375,000	$590,000		$175,000	$130,000
Discounts from list prices		25,800	47,200		8,400	590
Cost of goods sold		285,000	510,000		144,000	95,000
Delivery costs		4,500	6,710		2,230	2,145
Ordering processing costs		3,820	5,980		2,180	1,130
Costs of sales visits		6,300	2,620		2,620	1,575

Enviro-Techs annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail customers. The companys 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 only if the company completely shuts down.

1. Enviro-Techs 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 + 38 million) for the wholesale channel and $22 million (12 + 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-Techs managers take? Explain