Milwaukee, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2016
ID: 2472116 • Letter: M
Question
Milwaukee, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2016 are presented below. All of the allocated costs will continue even if a division is discontinued. Milwaukee allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Milwaukee feels that it should be discontinued. Milwaukee feels if the division is closed, that sales at the Bud division will increase by 12%, and that sales at the Er division will stay the same. Prepare an analysis showing the effect of discontinuing the Wise division. By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor.Explanation / Answer
The effect of discontinuing the Wise decision :
Bud Er
Revenue($) 78,400 40,000
Less Variable costs $) 35,840 16,000
Less Direct FIxed Cost ($) 14,000 12,000
Less Allocated FIxed Cost ($) 6,000 14,000
Net Income ($) 22,560 8,000
Note : Variable Cost changes by 12% as per the question.