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 (30%), skirts (29%), dresses (14%), and other (27%). Fleet Street has been using a volume-based rate to assign overhead to each product; the rate it uses is £2.37 per unit produced. The results for the trousers line, using the volume-based approach, are as follows:

Number of units produced		15,000
Price (all figures in £)		27.02
Total revenue		405,300
Direct materials		66,700
Direct labor		222,600
Overhead (volume-based)		35,550
Total product cost		324,850
Nonmanufacturing expenses		60,600
Total cost		385,450
Profit margin for trousers		19,850

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	£	39,100
Grading		33,700
Lay planning		32,800
Sewing		37,400
Finishing		25,200
Inspection		11,100
Boxing up		6,000
Storage		12,000

Required:

Determine the profit margin for trousers using ABC

Answer 1