EXERCISE ON JOC



TREASURY GROUP is a company specialized in the production of clothes for many famous fashion houses. Right now, it is involved in the production of some garments for the 2015 spring-summer collection.
During the months of May and June 2014, the following items were produced:



c1 c2 c3
Model T-shirt A T-shirt B T-shirt C
Quantity 1.500 units 1.250 units 500 units

Table 1: clothes produced in the two months of May–June 2014


The realization of the clothes starts from the department style, in which a fashion specialist is entirely devoted to the activity of paper prototyping.
A prototype on paper is indeed realized for each garment, on the basis of which the CAD department later provides patterns development and printing for the requested sizes, using an appropriate software.
The time required for patterns development and printing is different depending on the complexity of the models.
In the considered period, the following estimations were provided:

c1 c2 c3
Model T-shirt A T-shirt B T-shirt C
Time required 66 h 25 h 19 h

Table 2: Time required for patterns development and printing for each requested product


Five technicians and another fashion specialist are employed in this department.
This fashion specialist spends 60% of his time for the patterns development and printing, while he devotes 40% of his time to the definition of paper prototypes.
The patterns of different sizes pass to the sewing & cutting department.
The cutting activity is manually carried out by one technician (fully dedicated to this activity).
This cutting activity requires different time depending on the cloth, but it does not depend on the cloth size.
The cutting time for the three products realized in the months of May and June 2014 were as follows:

c1 c2 c3
Model T-shirt A T-shirt B T-shirt C
Cutting time 3.000 minutes 3.000 minutes 750 minutes

Table 3: Cutting time for each cloth


The sewing activity currently employs four technicians, entirely dedicated to this activity.
They use an appropriate equipment, purchased in 2004 and already fully depreciated.
The timetable for garments sewing is as follows (total time related to the two months):

c1 c2 c3
Model T-shirt A T-shirt B T-shirt C
Sawing time 6.000 minutes 7.500 minutes 3.500 minutes

Table 4: Sawing time for each cloth


The company decided to adopt an Activity Based Costing (ABC) approach in order to allocate indirect costs in a more precise way.
For this purpose, some additional information were collected:

  • the monthly cost of a fashion specialist is 2,500 €/person, while the monthly cost of a technician is 1,500 €/person
  • the length of the activity of paper prototyping depends on the number of changes required by customers.
    After each meeting with a customer, it follows a change of the prototype in order to satisfy his requirements.
    During the months of May-June 2014, 35 meetings with customers were organized, 15 of which for the T-Shirts A, 10 for Shorts B and the remaining for the Skirts C
  • during the months of May and June, additional indirect costs related to energy incurred for a total of 5,225 €.
    60% of the energy cost were absorbed by the activity of patterns development and printing, 8% of the cost was assigned to the task of cutting while the remaining cost was related to sewing task

Calculate the cost of each of the three products by applying an ABC methodology.