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 $1,002,000. Overhead is allocated to products based on direct materials cost. Data for year 1 show the following: Sales revenue Direct materials. Direct labor 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 $635,000. 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? Reg A1 Complete this question by entering your answers in the tabs below. Headphones $ 2,262,850 735,000 494,000 Req A2 Headphones Speakers Speakers $ 2,156,000 935,000 254,000 Markup 96 96 Req B Calculate the markup for both headphones and speakers. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)
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 $1,002,000. Overhead is allocated to products based on direct materials cost. Data for year 1 show the following: Sales revenue Direct materials. Direct labor 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 $635,000. 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? Reg A1 Complete this question by entering your answers in the tabs below. Headphones $ 2,262,850 735,000 494,000 Req A2 Headphones Speakers Speakers $ 2,156,000 935,000 254,000 Markup 96 96 Req B Calculate the markup for both headphones and speakers. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $1,002,000. Overhead is allocated to products based on direct materials cost. Data for year
1 show the following:
Sales revenue
Direct materials
Direct labor
Headphones
$ 2,262,850
735,000
494,000
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 $635,000. 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?
Req A1
Complete this question by entering your answers in the tabs below.
Headphones
Speakers
Speakers
$ 2,156,000
Req A2
Calculate the markup for both headphones and speakers. (Enter your answers as a percentage rounded to 1 decimal place
(i.e., 32.1).)
Markup
%6
%6
935,000
254,000
Req B
< Req A1
Req A2 >
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