Export Clothing, Inc. Activity Based Costing Export Clothing, Inc. is a clothing exporter with manufacturing facilities located overseas. The company produces both pants and shirts for the export market, with its major customers being large retailers in the United States. During the most recent year, Export Clothing produced 600,000 shirts and 350,000 pairs of pants. Export Clothings accountant has assembled the following data. Cutting Department Workers' wages $400,000 Foremen salaries 300,000 Materials 600,000 Other manufacturing overhead 1,100,000 $2,400,000 Stitching Department Workers' wages $100,000 Foremen salaries 300,000 Materials 150,000 Other manufacturing overhead 450,000 $1,000,000 Company Headquarters Quality control inspectors $300,000 Department heads 200,000 Factory superintendent 150,000 Company president 450,000 Headquarters staff 250,000 Headquarters overhead 300,000 $1,650,000 Cutting Department Workers hours spent on shirts 40,000 hours Workers hours spent on pants 60,000 hours Total workers hours 100,000 hours Cost of shirt materials $250,000 Cost of pants materials 350,000 Total cost of materials $600,000 Stitching Department Workers hours spent on shirts 15,000 hours Workers hours spent on pants 10,000 hours Total workers hours 25,000 hours Company Headquarters The quality control inspectors, the department heads, and the factory superintendent spend almost all of their time either in the factory or doing work directly related to the factory. Only the company president spends a substantial amount of time dealing with bankers, attorneys, investors, government officials, and so forth. The functions of the headquarters staff are explained more fully below. An activity-based costing (ABC) analysis of Export Clothings overhead costs reveals the following. Cutting Department Foremen: Foremen in the Cutting Department spend 60% of their time on issues relating to worker turnover (such as training new workers) and 40% of their time on issues related to machine repairs. Overhead: Analysis of the overhead in the Cutting Department indicates the following: Related to worker turnover $300,000 Related to machine repairs 100,000 Related to materials ordered 100,000 Related to clothing design 500,000 General manufacturing overhead 100,000 Total $1,100,000 Stitching Department The materials used in the Stitching Department are all considered to be indirect materials such as thread, buttons, and zippers. 70% of these materials are used in the shirts and 30% are used in the pants. Foremen: Foremen in the Stitching Department spend 30% of their time on issues relating to worker turnover (such as training new workers) and 70% of their time on issues related to machine repairs. Overhead: Analysis of the overhead in the Stitching Department indicates the following: Related to worker turnover $100,000 Related to machine repairs 150,000 Related to materials ordered 50,000 General manufacturing overhead 150,000 Total $450,000 Company Headquarters A. Headquarters personnel time is spent as follows: Quality control inspectors: 90% on inspections, 10% on miscellaneous other factory duties Department heads: 30% on issues related to clothing design issues, 40% on issues related to worker turnover, and 30% on miscellaneous other factory duties Factory superintendent: 50% on clothing design issues, 50% on miscellaneous other factory duties Company president: 100% on administrative duties Headquarters staff: 25% on materials orders 25% on issues related to worker turnover 25% on miscellaneous other factory duties 25% on company headquarters office duties B. Headquarters overhead is incurred as follows: 20% on materials orders 40% on issues related to worker turnover 20% on miscellaneous other factory duties 20% on company headquarters office duties The data related to overhead and cost drivers is summarized in the following exhibit. Worker Machine Clothing Materials Costs Inspections Turnover Repairs Design Orders General Total Admin Cutting foremen $300,000 $0 $180,000 $120,000 $0 $0 $0 $300,000 Cutting overhead 1,100,000 0 300,000 100,000 500,000 100,000 100,000 1,100,000 Stitching foremen 300,000 0 90,000 210,000 0 0 0 300,000 Stitching overhead 450,000 0 100,000 150,000 0 50,000 150,000 450,000 Quality control inspectors 300,000 270,000 0 0 0 0 30,000 300,000 Department heads 200,000 0 80,000 0 60,000 0 60,000 200,000 Factory superintendent 150,000 0 0 0 75,000 0 75,000 150,000 Company president 450,000 0 0 0 0 0 0 0 450,000 Headquarters staff 250,000 0 62,500 0 0 62,500 62,500 187,500 62,500 Headquarters overhead 300,000 0 120,000 0 0 60,000 60,000 240,000 60,000 Total $3,800,000 $270,000 $932,500 $580,000 $635,000 $272,500 $537,500 $3,227,500 $572,500 The following additional information relates to Export Clothings cost drivers. Inspections: During the past year, 100 inspections were completed. Because of the many different styles of shirts, and because of the greater number of cloth pieces that must be cut for each shirt, the quality control inspectors spend more of their time inspecting shirts than inspecting pants. 80 inspections were for shirts and 20 were for pants. Worker turnover: During the past year, 30 workers quit and were replaced. Of these 30, 29 worked on shirts and 1 worked on pants. Machine repairs: During the past year, there were 1,400 machine repairs necessary. Of these 1,400 repairs, 1,200 were for shirt machines and 200 were for pants machines. Clothing design: During the past year, there were 100 new clothing designs generated. Of these 100 new designs, 95 were for shirts and 5 were for pants. Materials orders: During the past year, 50 materials orders were placed. Of these 50 orders, 45 were for shirt material and 5 were for pants material. Miscellaneous and general factory overhead items are considered to be facility support costs and are not allocated to either shirts or pants. Questions: 1. What is the cost to produce one shirt? 2. What is the cost to produce one pair of pants? Please show work.