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 $$1,080,000.$ Overhead is allocated to products based on direct materials cost. Data for year $1$ show the following:

Headphones Speakers

Sales revenue $ $2,462,400$ $ $2,340,600$

Direct materials $800,0001,000,000$

Direct labor $520,000280,000$

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 $$700,000.$ The revenue and costs for headphones are expected to be the same as last year. What is the estimated markup for headphones in year $2?$