Bell enterprises currently produces several products. Model L78 is showing a net operating loss as indicated by the following condensed income statement prepared for the year ended Dec 31. Sales (1500 units at $320). $480,000 Variable costs(1500 units at $240) $360,000 Contribution margin $120,000 Fixed cost. $125,000 Operating loss. $(5,000) You have been hired by Bell Ent to help analyse the decision as to whether to eliminate Model L78. Upon investigation you discover that if Model L78 is eliminated, $20,000 of the fixed costs shown on the above condensed income statement can be eliminated. The rest of the fixed costs allocated to Model L78 are common fixed costs that will be allocated to the remaining two products. Assess whether Bell Ent should discontinue Model L78.
Bell enterprises currently produces several products. Model L78 is showing a net operating loss as indicated by the following condensed income statement prepared for the year ended Dec 31.
Sales (1500 units at $320). $480,000
Variable costs(1500 units at $240) $360,000
Contribution margin $120,000
Fixed cost. $125,000
Operating loss. $(5,000)
You have been hired by Bell Ent to help analyse the decision as to whether to eliminate Model L78. Upon investigation you discover that if Model L78 is eliminated, $20,000 of the fixed costs shown on the above condensed income statement can be eliminated. The rest of the fixed costs allocated to Model L78 are common fixed costs that will be allocated to the remaining two products.
Assess whether Bell Ent should discontinue Model L78.
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