Reference no: EM132548627

McNutty, Inc., produces desk and chairs. A new CFO has just been hired and announces a new policy that if a product cannot earn a margin of at least 15 percent , it will be dropped. the margin is computed as product profit divided by reported product cost. Manufacturing overhead for year 1 totaled $910,000. Over head is allocated to products based on direct labor cost. Data for yr 1

                                                 Chairs                       Desks
Sales revenue                   $1,112,100           $2,570,4000
Direct materials                   $603,000                $990,000
Director labor                     $ 170,000            $480,000

Question (A1) Based on the CFO's new policy, Calculate the profit margin for both chairs and desks.

Question (A2) Which of the two products should be dropped?

Question (B) Regardless of your answer in requirement (a), the CFO decides at the beginning of year 2 to drop the chair product. The company cost analyst estimates that the overhead with out the chair line will be $840, 000. The revenue and cost for desks are expected to be the same as last year. What is the estimate margin for desks in year 2?