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

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