McNulty, Inc., produces desks 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 35 percent, it will be dropped. The margin is computed as product gross profit divided by reported product cost.   Manufacturing overhead for year 1 totaled $1,071,000. Overhead is allocated to products based on direct labor cost. Data for year 1 show the following.     Chairs Desks Sales revenue $1,580,800 $2,786,000 Direct materials 595,000 910,000 Direct labor 230,000 400,000   Required: a-1. Based on the CFO's new policy, calculate the profit margin for both chairs and desks.  a-2. 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 chair product. The company cost analyst estimates that overhead without the chair line will be $760,000. The revenue and costs for desks are expected to be the same as last year. What is the estimated margin for desks in year 2?   1.) Based on the CFO's new policy, calculate the profit margin for both chairs and desks.     Profit Margin Chairs   % Desks   %     2.) Which of the two products should be dropped? Desk or Chairs?   3.) 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 overhead without the chair line will be $760,000. The revenue and costs for desks are expected to be the same as last year. What is the estimated margin for desks in year 2? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).)     Estimated margin for desks - Year 2   %

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

McNulty, Inc., produces desks 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 35 percent, it will be dropped. The margin is computed as product gross profit divided by reported product cost.

 

Manufacturing overhead for year 1 totaled $1,071,000. Overhead is allocated to products based on direct labor cost. Data for year 1 show the following.

 

  Chairs Desks
Sales revenue $1,580,800 $2,786,000
Direct materials 595,000 910,000
Direct labor 230,000 400,000

 

Required:

a-1. Based on the CFO's new policy, calculate the profit margin for both chairs and desks. 

a-2. 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 chair product. The company cost analyst estimates that overhead without the chair line will be $760,000. The revenue and costs for desks are expected to be the same as last year. What is the estimated margin for desks in year 2?

 

1.) Based on the CFO's new policy, calculate the profit margin for both chairs and desks.

 
  Profit Margin
Chairs   %
Desks   %

 

 

2.) Which of the two products should be dropped? Desk or Chairs?

 

3.) 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 overhead without the chair line will be $760,000. The revenue and costs for desks are expected to be the same as last year. What is the estimated margin for desks in year 2? (Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).)

 
 
Estimated margin for desks - Year 2   %
 

 

 

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Risk Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education