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 (45%), skirts (35%), dresses (15%), and other (5%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.25 per unit produced. The results for the trousers line, using the volume-based approach, are as follows:
| |
|
| Number of units produced |
|
10,000 |
|
| Price (all figures in £) |
|
20.525 |
|
| Total revenue |
|
205,250 |
|
| |
| Direct materials |
|
33,750 |
|
| Direct labor |
|
112,500 |
|
| Overhead (volume-based) |
|
22,500 |
|
| |
| Total product cost |
|
168,750 |
|
| Nonmanufacturing expenses |
|
31,500 |
|
| |
| Total cost |
|
200,250 |
|
| |
| Profit margin for trousers |
|
5,000 |
|
| |
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 |
£ |
22,000 |
|
| Grading |
|
19,000 |
|
| Lay planning |
|
18,500 |
|
| Sewing |
|
21,000 |
|
| Finishing |
|
14,300 |
|
| Inspection |
|
6,500 |
|
| Boxing up |
|
3,500 |
|
| Storage |
|
7,000 |
|
Required:
Determine the profit margin for trousers using ABC.