Fleet Street Inc., a manufacturer of high-fashion clothing for women, is located

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 (21 %), skirts (33%), dresses (13%), and other (33%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product, the rate it uses is £2.04 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 14,000 24.28 339,920 Direct materials Direct labor Overhead (volume-based) 55,800 186,300 28,560 lotal product cost Nonmanufacturing expenses 270,660 50,500 Total cost 321,160 Profit margin for trousers 18,760 Recently, it has 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 £ 31,840 27,200 26,500 30,400 20,200 9,000 4,900 9,800 Required Determine the profit margin for trousers using ABC Profit margin

Explanation / Answer

Total conversion cost = 31840 + 27200 + 26500 + 30400 + 20200 + 9000 + 4900 + 9800 = $159840

Sales $339920 Cost: Direct materials 55800 Conversion cost 159840 Total product cost 215640 Non manufacturing expenses 50500 Total cost $266140 Profit margin $73780

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