Indirect fixed costs

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Reference no: EM13912668

Anheiser has three divisions: Bud, Wise, and Er. The results of May, 2010 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. Anheiser allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Anheiser feels that it should be discontinued. Anheiser feels if the division is closed, that sales at the Bud division will increase by 20%, 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 Anheiser close the Wise division?

Reference no: EM13912668

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