Reference no: EM132481453

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 (23%), skirts (35%), dresses (10%), and other (32%). Fleet Street has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.20 per unit produced.

The results for the trousers line, using the volume-based approach, are as follows:

Number of units produced              14,000

Price (all figures in £)                      26.40

Total revenue                               369,600

Direct materials                              60,900

Direct labor                                 203,200

Overhead (volume-based)              30,800

Total product cost                   294,900

Nonmanufacturing expenses               55,200

Total cost                                  350,100

Profit margin for trousers             19,500

Recently, Fleet Street 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              £37,760

Grading                        32,300

Lay planning                    31,400

Sewing                             36,100

Finishing                           23,900

Inspection                       10,800

Boxing up                       5,900

Storage                      11,800

Required:

Question 1: Determine the profit margin for trousers using ABC.