Solution-Showing the effect of discontinuing the wise

Showing the effect of discontinuing the wise division

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Reference no: EM133156791

Question - Oriole, Inc. has three divisions: Bud, Wise, and Er. The results of operations for May, 2022 are presented below.

	Bud	Wise	Er	Total
Units sold	3,600	6,000	2,400	12,000
Revenue	$84,000	$60,000	$48,000	$192,000
Less variable costs	38,400	31,200	19,200	88,800
Less direct fixed costs	16,800	22,800	14,400	54,000
Less allocated fixed costs	7,200	12,000	4,800	24,000
Net income	$21,600	$(6,000)	$9,600	$25,200

All of the allocated costs will continue even if a division is discontinued. Oriole allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Oriole is concerned that it should be discontinued. Oriole thinks that if the division is closed, that sales at the Bud division will increase by 12% while sales at the Er division will stay the same.

Prepare an analysis showing the effect of discontinuing the Wise division.

Reference no: EM133156791

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Showing the effect of discontinuing the wise division

Reference no: EM133156791

Reference no: EM133156791

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