Determine the profit margin for trousers using abc

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Reference no: EM131768146

Fleet Street Inc., a manufacturer of high-fashion clothing for women, is located in South London in the UK. Its product line consists of trousers (45%), skirts (35%), dresses (15%), and other (5%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.25 per unit produced. The results for the trousers line, using the volume-based approach, are as follows:

   
  Number of units produced   10,000  
  Price (all figures in £)   20.525  
  Total revenue   205,250  
 
  Direct materials   33,750  
  Direct labor   112,500  
  Overhead (volume-based)   22,500  
 
  Total product cost   168,750  
  Nonmanufacturing expenses   31,500  
 
  Total cost   200,250  
 
  Profit margin for trousers   5,000  
 

Recently, it has conducted a further analysis of the trousers line of product, using ABC. In the study, eight activities were identified and direct labor was assigned to the activities. The total conversion cost (labor and overhead) for the eight activities, after allocation to the trousers line, is as follows:

   
  Pattern cutting £ 22,000  
  Grading   19,000  
  Lay planning   18,500  
  Sewing   21,000  
  Finishing   14,300  
  Inspection   6,500  
  Boxing up   3,500  
  Storage   7,000  

Required:

Determine the profit margin for trousers using ABC.

Reference no: EM131768146

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