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# Discontinuing a division

I have a problem I need help with. Please see below...

Anheiser has three divisions: bud, wise, and Er. The results of May, 2006 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 allocated 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? Briefly indicate why or why not.

#### Solution Preview

Anheiser has three divisions: bud, wise, and Er. The results of May, 2006 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 ...

#### Solution Summary

The solution explains how to decide if a division should be discontinued

\$2.19