Cornell 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 December 31. You have been hired by Cornell Enterprises to help analyze 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 produced by Cornell Enterprises. Determine if Cornell Enterprises should discontinue Model L78.
Cornell 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 December 31. You have been hired by Cornell Enterprises to help analyze 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 produced by Cornell Enterprises. Determine if Cornell Enterprises should discontinue Model L78.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Cornell 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 December 31.
You have been hired by Cornell Enterprises to help analyze 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 produced by Cornell Enterprises.
Determine if Cornell Enterprises should discontinue Model L78.
Transcribed Image Text:Cornell Enterprises
Model L78
Condensed Income Statement
For the Year Ended December 31
Sales (1,500 units at $320)
Variable costs (1,500 units at $240)
Contribution margin
$480,000
$360,000
$120,000
Fixed costs
$125,000
$(5.000)
Operating loss
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