Prepare an analysis showing the effect of discontinuing the Wise division. (Do not round intermediate calculations and round finalanswers to O decimal places, e.g. 1,525.)RevenueLess variable costsLess direct fixed costsLess allocated fixed costsNet incomeYes rane close the Wise division?NoBud$ErTotal Crane, Inc. has three divisions: Bud, Wise, and Er. The results of operations for May, 2022 are presented below.Units soldRevenueLess variable costsLess direct fixed costsLess allocated fixed costsNet incomeBud2,700$63,00028,80012,6005,400$16,200Wise4,500$45,00023,40017,1009,000$(4,500)Er1,800$36,00014,40010,8003,600$7,200Total9,000$144,00066,60040,50018,000$18,900All of the allocated costs will continue even if a division is discontinued. Crane allocates indirect fixed costs based on the number ofunits to be sold. Since the Wise division has a net loss, Crane is concerned that it should be discontinued. Crane thinks that if thedivision is closed, that sales at the Bud division will increase by 12% while sales at the Er division will stay the same.

Allocation of fixed cost if wise division discontinued: unitsNo. of units of Er division = 1,800…

Answered: Units sold Revenue Less variable costs…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Units sold Revenue Less variable costs Less direct fixed costs Less allocated fixed costs Net income 2,700 $63,000 28,800 12,600 5,400 4,500 $45,000 $36,000 23,400 17,100 9,000 1,800 $16,200 $(4,500) 14,400 10,800 3,600 $7,200 9,000 $144,000 66,600 40,500 18,000 $18,900