Activity-Based Costing in the Fashion Apparel Industry Fashion House, a manufacturer of high fashion clothing for women, is located in South London. Its product line consists of trousers (45 percent), skirts (35 percent) , dresses (15 percent), and other (5 percent). Fashion House 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:
Number of units produced 10,000
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 Fashion House more likely to use ABC as a U.K. company than a similar company in France or the U.S. (refer to real world focus boxes in the chapter)?