All of the allocated costs will continue even if a division

Reference no: EM13571101

Milwaukee, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2013 are presented below.

	Bud	Wise				Er		Total
Units sold	3,000		5,000			2,000		10,000
Revenue	$70,000	$	50,000		$	40,000	$	160,000
Less variable costs	32,000		26,000			16,000		74,000
Less direct fixed costs	14,000		19,000			12,000		45,000
Less allocated fixed costs	6,000		10,000			4,000		20,000
Net income	$18,000	$	(5,000	)	$	8,000	$	21,000

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.

Reference no: EM13571101

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