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 (29%), skirts (27%), dresses (11%), and other (33%). 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 £)		24.42
Total revenue		341,880
Direct materials		56,200
Direct labor		187,600
Overhead (volume-based)		30,800
Total product cost		274,600
Nonmanufacturing expenses		51,400
Total cost		326,000
Profit margin for trousers		15,880

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	£	33,060
Grading		28,200
Lay planning		27,500
Sewing		31,600
Finishing		20,900
Inspection		9,300
Boxing up		5,100
Storage		10,200

Required:

Determine the profit margin for trousers using ABC.

Answer 1