Pink Bags (PB) is a designer of high- quality backpacks and purses. Each design is made in small batches. Each spring, PB comes out with new designs for the backpack and for the purse. The company uses these designs for a year, and then moves on to the next trend. The bags are all made on the same fabrication equipment, which is expected to operate at capacity. The equipment must be switched over to a new design and set up to prepare for the production of each new batch of products. When completed, each batch of products is immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. Budgeted information for the year is as follows.

Pink Bags Budget for Costs and Activities for the Year Ended February 28, 2013

Direct materials— purses............ $ 283,575

Direct materials— backpacks ..........496,625

Direct manufacturing labor— purses ......95,000

Direct manufacturing labor— backpacks.... 119,000

Setup................... 65,000

Shipping .................72,400

Design .................162,500

Plant utilities and administration...... 253,500

Total .................$ 1,547,600

Other budget information follows.

Required
1. Identify the cost hierarchy level for each cost category.
2. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.
3. Calculate the budgeted cost per unit of cost driver for each cost category.
4. Calculate the budgeted total costs and cost per unit for each product line.
5. Explain how you could use the information in requirement 4 to reducecosts.

Transcribed Image Text:

Number of bags Hours of production Number of batches Number of designs Backpacks 6,250 1,600 Purses 3,100 2,625 75 Total 9,350 4,225 200 125