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%),
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 (30%), dresses (12%), and other (24%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product; the rate it uses is 2.24 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 ) 26.21 Total revenue 314,520 Direct materials 51,800 Direct labor 172,900 Overhead (volume-based) 26,880 Total product cost 251,580 Nonmanufacturing expenses 46,900 Total cost 298,480 Profit margin for trousers 16,040 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 31,450 Grading 27,100 Lay planning 26,400 Sewing 30,100 Finishing 20,200 Inspection 8,900 Boxing up 4,800 Storage 9,600 Required: Determine the profit margin for trousers using ABC.
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