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Blossom, Inc. has three divisions: Bud, Wise, and Er. The results of operations for May, 2022 are presented below. Bud Wise Er Total Units
Blossom, Inc. has three divisions: Bud, Wise, and Er. The results of operations for May, 2022 are presented below. Bud Wise Er Total Units sold 9,000 15,000 6,000 30,000 Revenue $210,000 $150,000 $120,000 $480,000 Less variable costs 96,000 78,000 48,000 222,000 Less direct fixed costs 42,000 57,000 36,000 135,000 Less allocated fixed costs 18,000 30,000 12,000 60,000 Net income $54,000 $(15,000) $24,000 $63,000 All of the allocated costs will continue even if a division is discontinued. Blossom allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Blossom is concerned that it should be discontinued. Blossom 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. (Do not round intermediate calculations and round final answers to O decimal places, e.g. 1,525.)
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