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 (21%), skirts (23%), dresses (14%), and other (42%). Fleet Street has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.82 per unit produced. The results for the trousers line, using the volume-based approach, are as follows: Number of units produced 11,000 Price (all figures in £) 31.30 Total revenue 344,300 Direct materials 56,700 Direct labor 189,300 Overhead (volume-based) 31,020 Total product cost 277,020 Nonmanufacturing expenses 51,600 Total cost 328,620 Profit margin for trousers 15,680 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 £ 36,710 Grading 31,600 Lay planning 30,800 Sewing 35,100 Finishing 23,600 Inspection 10,400 Boxing up 5,600 Storage 11,200 Required: Determine the profit margin for trousers using ABC. Next Visit question mapQuestion 2 of 4 Total 2 of 4 Prev

Answer 1

CALCULATION OF TOTAL CONVERSION COT FOR TROUSERS

ACTIVITY	CONVERSION COST
Pattern cutting	£ 36,710
Grading	£ 31,600
Lay planning	£ 30,800
Sewing	£ 35,100
Finishing	£ 23,600
Inspection	£ 10,400
Boxing up	£ 5,600
Storage	£ 11,200
TOTAL	£ 185,010

CALCULATION OF PROFIT MARGIN FOR TROUSERS USING ABC

PARTICULAR	DETAIL	AMOUNT
SALES		£ 344300
DIRECT MATERIAL	£ 56700
CONVERSION COST	£ 185010
TOTAL PRODUCTION COST	£ 241710
NON MANUFACTURING EXP	£ 51600
TOTAL COST		£ 293310
PROFIT MARGIN FOR TROUSERS		£ 50990