Reference no: EM132500650

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.