Fleet Street Inc a manufacturer of highfashion clothing for

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 (25%), skirts (33%), dresses (14%), and other (28%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.61 per unit produced. The results for the trousers line, using the volume-based approach, are as follows:

17,860

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:

Storage

12,200

Determine the profit margin for trousers using ABC. Please show all calculations step by step

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 (25%), skirts (33%), dresses (14%), and other (28%). Fleet Street Inc. has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.61 per unit produced. The results for the trousers line, using the volume-based approach, are as follows: Number of units produced 13,000   Price (all figures in £) 29.23   Total revenue 379,990   Direct materials 62,500   Direct labor 208,600   Overhead (volume-based) 33,930   Total product cost 305,030   Nonmanufacturing expenses 57,100   Total cost 362,130   Profit margin for trousers 17,860

Solution

Product Margin statement Units Rate Amount Sales Revenue                          13,000 29.23        379,990 Less: Product Cost Direct Material          62,500 Conversion Cost*        198,370 Total Product Cost (ABC)        260,870 Gross Margin        119,120 Less: Non manufacturing expenses          57,100   Profit margin for trousers £ 62,020.00 Pattern cutting £ 39,470   Grading 33,700   Lay planning 32,800   Sewing 37,800   Finishing 25,000   Inspection 11,300   Boxing up 6,100 Storage 12,200 Total Conversion Cost* 198,370