Reference no: EM132501082

Point 1: 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 (24%), skirts (37%), dresses (14%), and other (25%). Fleet Street has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.92 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 £) 34.16

Total revenue 341,600

Direct materials 56,200

Direct labor 187,600

Overhead (volume-based) 29,200

Total product cost 273,000

Nonmanufacturing expenses 51,100

Total cost 324,100

Profit margin for trousers 17,500

Point 2: 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£34,960

Grading 29,900

Lay planning 29,100

Sewing 33,500

Finishing 22,200

Inspection 10,000

Boxing up 5,400

Storage 10,800

Required:

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