Indirect fixed costs, All of the allocated costs will

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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