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
6,900
11,500
4,600
23,000
Revenue
$161,000
$115,000
$92,000 $368,000
Less variable costs
73,600
59,800
36,800
170,200
Less direct fixed costs
32,200
43,700
27,600
103,500
Less allocated fixed costs
13,800
23,000
9,200
46,000
Net income
$41,400
$(11,500)
$18,400
$48,300
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.
(a)
Prepare an analysis showing the effect of discontinuing the Wise division. (Do not round intermediate calculations and round
final answers to O decimal places, e.g. 1,525.)