Reference no: EM132710225

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