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 (34%), skirts (32%), dresses (11%), and other (23%). Fleet Street Inc. 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 12,000 Price (all figures in £) 32.41 Total revenue 388,920 ________________________________________ ________________________________________ ________________________________________ Direct materials 64,000 Direct labor 213,600 Overhead (volume-based) 35,040 ________________________________________ ________________________________________ ________________________________________ Total product cost 312,640 Nonmanufacturing expenses 58,500 ________________________________________ ________________________________________ ________________________________________ Total cost 371,140 ________________________________________ ________________________________________ ________________________________________ Profit margin for trousers 17,780 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 £ 39,440 Grading 33,700 Lay planning 32,700 Sewing 37,600 Finishing 24,900 Inspection 11,200 Boxing up 6,200 Storage 12,400 Required: Determine the profit margin for trousers using ABC. Profit margin __________

Explanation / Answer

Profit Margin = 68280

Rate Volume Volume Based Costing Activity Based Costing Total revenue 32.41 12,000 388,920 388,920 Direct materials 64,000 64,000 Direct labor 213,600 198,140 Overhead (volume-based) 2.92 12,000 35,040 Total product cost 312,640 262,140 Nonmanufacturing expenses 58,500 58,500 Total cost 371,140 320,640 Profit margin for trousers 17,780 68,280 Pattern cutting 39,440 Grading 33,700 Lay planning 32,700 Sewing 37,600 Finishing 24,900 Inspection 11,200 Boxing up 6,200 Storage 12,400 Total 198,140

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