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.
Instructions
(a) Prepare an analysis showing the effect of discontinuing the Wise division.
(b) Should Milwaukee close the Wise division? Briefly indicate why or why not.

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.
Instructions
(a) Prepare an analysis showing the effect of discontinuing the Wise division.
(b) Should Milwaukee close the Wise division? Briefly indicate why or why not.

Quizplus · Accepted Answer

The Answer of 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.
Instructions
(a) Prepare an analysis showing the effect of discontinuing the Wise division.
(b) Should Milwaukee close the Wise division? Briefly indicate why or why not.