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 (23%),
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 (23%), skirts (35%), dresses (10%), and other (32%). 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 14,000
Price (all figures in ) 26.40
Total revenue 369,600
Direct materials 60,900
Direct labor 203,200
Overhead (volume-based) 30,800
Total product cost 294,900
Nonmanufacturing expenses 55,200
Total cost 350,100
Profit margin for trousers 19,500
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 37,760
Grading 32,300
Lay planning 31,400
Sewing 36,100
Finishing 23,900
Inspection 10,800
Boxing up 5,900
Storage 11,800
Required:
Determine the profit margin for trousers using ABC.
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