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Case Pumpkin Bags (PE) is a designer of high quality backpacks and purses. Each design is made in small batches. Each spring, PE 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. 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 2019 is as follows: Direct materialspurses: $2,379,290 Direct materialsbackpacks: $3,412,920 Direct manufacturing labourpurses: $98,000 Direct manufacturing labourbackpacks: $120,000 Setup: $05,930 Shipping: $23,910 Design: $100,000 Marketing: $252,000 Genera] Administration: $120,200 Utber budget information follows: Number of bags 10,050 33,350 43,400 I Id'lled Hours or .. duction 1,450 4,050 Nmnher of batches I_\" Number of desi- s -_ Revenues 3,115,500 4,160,250 \"1,234,250 Suppose that the company sells all the items produced. 1. Is Pumpkin Bags a manufacturing, a merchandising or a service company? Explain carefully your answer. 2. Based on this exercise, what are the costs incurred by Piunpkin Bags? a. For each cost determine its classication by cost behaviour [based on a 3- months horizon}. Explain your choice in one sentence. h. For each cost determine if it is a direct or an indirect cost. Explain your choice in one sentence. :49?" c. For each cost determine its classication by business cycle. Explain yotu choice in one sentence. Establish the income statement of the company [assume the company pays no taxes} a. Calculate precisely the cost of goods sold b. Calculate precisely the gross prot c. Calculate precisely the operating income d. Calculate precisely the income before taxes Assuming that the purpose of the company is to check the profitability of backpacks and purses sold, for each indirect cost (see question 2b}, determine an allocation key. Justify in one sentence your choice (the same allocation key may be used for more than one indirect cost}. Calculate the manufacturing cost per unit of backpacks and purses. Calculate the total cost per unit of backpacks and purses. Calculate the total margin per unit of backpacks and purses. What is your conclusion about the company? Please make some suggestions to improve the current situation. Calculate the company's break-even point for the purses [based on all the costs allocated to purses}. Your answer should be expressed as a number of purses sold AND in 3. Show all the steps of your calculation. How many purses (based on all the costs allocated to purses) should the company sell if the target profit is $2,,'l Make some suggestions to improve the current situation [if necessary}. It' the company is a price-setter, what is your conclusion about the selling price [your answer should be based on both quantitative and qualitative elements}. It]. Construct the C'v'P chart for purses. Make sure to clearly identify the axis names and all relevant points on your graph
