Hanson - Tech has only two retail and two wholesale customers. Information relating to each customer for 2017 follows (in thousands): (Click the icon to view the data.) Hanson - Tech's annual distribution-channel costs are $41 million for wholesale customers and $5 million for retail customers. The company's annual corporate-sustaining costs, such as salary for top management and general-administration costs, are $63 million. There is no cause-and-effect or benefits-received relationship between any cost-allocation base and corporate-sustaining costs. That is, Hanson - Tech could save corporate-sustaining costs only if the company completely shuts down. Wholesale Customers Retail Customers North America South America Green Global Wholesaler Wholesaler Energy Power Revenues at list prices $ 435,000 $ 590,000 $ 170,000 $ 95,000 Discounts from list prices 28,000 40,000 7,600 460 Cost of goods sold 360,000 450,000 122,000 84,000 Delivery costs 420 620 110 Order processing costs 825 1,000 215 125 Cost of sales visit 5,700 5,500 2,000 1,400 170 Requirement 1. Calculate customer-level operating income. Begin by calculating each customer's gross margin. Then calculate the operating income for each customer. (Enter amounts in thousands.) All amounts in thousands of U.S. Dollars Wholesale Retail North America South America Green Global Wholesaler Wholesaler Energy Power Gross margin Customer-level operating income Requirement 2. Prepare a customer-cost hierarchy report. (Enter amounts in thousands.) Customer Distribution Channels (all amounts in thousands of U.S. Dollars) Wholesale Customers Retail Customers Total N. America S. America Total Green Global Total Wholesale Wholesaler Wholesaler Energy Power Retail Operating income Requirement 3. Hanson - Tech's management decides to allocate all corporate-sustaining costs to distribution channels. Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Hanson - Tech's managers take? Explain. (Enter amounts in thousands.) If corporate costs are allocated to the channels, the retail channel will show an operating of $ (in thousands) and the wholesale channel will show an operating of $ (in thousands). The overall operating profit On the basis of the calculations above, what actions, if any, should Hanson - Tech's managers take? Explain. There is cause-and-effect or benefits-received relationship between corporate costs and any allocation base. Therefore, the management of Hanson - Tech Electronics base any performance evaluations or investment/disinvestment decisions based on these channel-level operating income numbers. Requirement 4. How might Hanson - Tech use the new cost information from its activity-based costing system to better manage its business? Hanson - Tech could use activity-based cost information to better manage its business by and determining which activities are If costs of sales visits for the North America Wholesaler are $5,700, which is greater than the cost for the South America Wholesaler, Hanson - Tech should evaluate the of this activity for this customer group. Cost of goods sold Customer-level operating costs: Delivery Order processing Price discounts Revenues at actual prices Revenues at list price Sales visits Total cust-level oper. costs Corporate-sustaining costs Customer-level costs Customer-level operating income Distribution-channel costs Distribution-channel-level oper. inc. Revenues at actual prices
