What is the estimated markup for headphones in year 2

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Question: Regular Company produces audio equipment, specifically headphones and speakers. A new CEO has just been hired and announces a new policy that if a product cannot earn a markup of at least 25 percent, it will be dropped. The markup is computed as product gross profit divided by reported product cost. Manufacturing overhead for year 1 totaled $1,056,000. Overhead is allocated to products based on direct materials cost. Data for year 1 show the following: Headphones Speakers Sales revenue $ 2,400,640 $ 2,283,440 Direct materials 780,000 980,000 Direct labor 512,000 272,000 Required: a-1. Calculate the markup for both headphones and speakers. a-2. Based on the CFO's new policy, which of the two products should be dropped? b. Regardless of your answer in requirement (a), the CFO decides at the beginning of year 2 to drop the speakers from the product line. The company cost analyst estimates that overhead without the speaker line will be $680,000. The revenue and costs for headphones are expected to be the same as last year. What is the estimated markup for headphones in year 2?

Reference no: EM133661705

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