Question

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 Price (all figures in £) Total revenue Direct materials Direct labor Overhead (volume-based) Total product cost Nonmanufacturing expenses Total cost Profit margin for trousers 14,000 24.42 341,880 56,200 187,600 30,800 274,600 51,400 326,000 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 Grading Lay planning Sewing Finishing Inspection Boxing up Storage £33,060 28,200 27,500 31,600 20,900 9,300 5,100 10,200 Required: Determine the profit margin for trousers using ABC.

Answer 1

Total Revenue		£341880
Direct Material		(£56200)
Labor & Overhead cost using ABC :-
Pattern cutting	£33060
Grading	£28200
Lay planning	£27500
Sewing	£31600
Finishing	£20900
Inspection	£9300
Boxing up	£5100
Storage	£10200
		(£165860)
Non Manufacturing Exp		(£51400)
Profit Margin for Trousers using ABC		£68420