Reference no: EM132714432
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 (29%), skirts (27%), dresses (11%), and other (33%). 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 £) 24.42
Total revenue 341,880
Direct materials 56,200
Direct labor 187,600
Overhead (volume-based) 30,800
Total product cost 274,600
Nonmanufacturing expenses 51,400
Total cost 326,000
Profit margin for trousers 15,880
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£33,060
Grading 28,200
Lay planning 27,500
Sewing 31,600
Finishing 20,900
Inspection 9,300
Boxing up 5,100
Storage 10,200
Required:
Problem 1: Determine the profit margin for trousers using ABC