Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 33

Activity-Based Costing in the Fashion Apparel Industry Fleet Street Inc., a manufacturer of high fashion clothing for women, is located in South London. 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:

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:

Required Determine the profit margin for trousers using ABC and comment on the difference in comparison to the volume-based calculations. Is Fleet Street more likely to use ABC as a U.K. company than a similar company in France or the United States (refer to real-world focus boxes in the chapter)