Ignore questions 1 & 2 as they are easily solved by Google. Thanks.

After all their analysis, James Jones and William West wondered what to do next. Clearly the custom bags were not as profitable as they had originally thought, and it apparently was due to the small order sizes. Sales representatives were receiving smaller orders per visit for custom bags than for basic bags, and the order processing, purchasing, and customer service activities associated with those orders were much higher than for basic gym bags. Their analysis had suggested several possible actions to consider. Even so, Jones and West wondered whether they should just discontinue offering the custom bags. They reviewed the results of their activity-based costing analysis (Exhibit 1), adding to that review some information related to the different cost classifications they had used at different points in time, for different purposes. They wondered how to use this information to quantify the profit impact of dropping the custom gym bag product line. If they used the product costs from the activity-based costing analysis, a preliminary analysis (Table 1) suggested that dropping the product line would decrease profit by only $650 per month: Table 1. Profit per unit. Per unit Price per unit $120.00 Cost per unit 118.70 Profit per unit 1.30 Number of units 500 Total profit $650 Source: Created by author Was it really that simple? West didn't think so. As he thought about what made up the $118.70 per unit in costs, he wasn't convinced that they would save that much per unit if they dropped the custom bag product line. They employed two full-time sales representatives, and they certainly wouldn't eliminate one of those positions. And the other manufacturing overhead and the administrative costs, which were driven by orders, might decrease some since they would be processing fewer small orders. But they would still incur those costs to process orders of the basic gym bags. He wasn't quite sure how to incorporate all of that thinking into their analysis. Basic Custom Cost behavior Manufacturing or nonmanufacturing Direct or indirect $ 30.00 $ 35,00 20.00 Variable Variable Manufacturing Manufacturing Direct Direct 15.00 Direct material Direct labor Manufacturing overhead Rent Depreciation Electricity Other manufacturing overhead Total Total manufacturing costs 2.45 1.60 4.20 1.60 3.60 Fixed Fixed Mixed @) Mixed (b) Manufacturing Manufacturing Manufacturing Manufacturing Indirect Indirect Indirect Indirect 3.60 18.80 7.05 14.70 59.70 28.20 83.20 10.00 12.00 Variable Nonmanufacturing Direct Sales commissions Nonmanufacturing overhead Sales Administrative Other Total Total nonmanufacturing costs Total costs 12.50 8.00 3.00 23.50 35.50 Fixed Fixed Fixed Nonmanufacturing Nonmanufacturing Nonmanufacturing 3.125 3.00 3.00 9.125 19.125 $ 78.825 Indirect Indirect Indirect $ 118.70 ACCT-240 Case Study 4 1. What are the advantages and disadvantages of activity-based-costing? 2. What are the advantages and disadvantages of traditional costing? 3. For West to be willing to end the product line, how much fixed costs would he need to get rid of? 4. Table 1 shows the custom bags have a cost of $117.80 per unit. West isn't sure if that's true or not. How would ending the custom bag product line impact profits? 5. (This problem requires CVP) Assuming they would not have a decrease in fixed costs resulting from ending the custom product line and assuming that stopping that production would free capacity that might be used to produce basic gym bags: How many more basic gym bags will the company need to produce and sell for it to make sense to drop the other line?|| After all their analysis, James Jones and William West wondered what to do next. Clearly the custom bags were not as profitable as they had originally thought, and it apparently was due to the small order sizes. Sales representatives were receiving smaller orders per visit for custom bags than for basic bags, and the order processing, purchasing, and customer service activities associated with those orders were much higher than for basic gym bags. Their analysis had suggested several possible actions to consider. Even so, Jones and West wondered whether they should just discontinue offering the custom bags. They reviewed the results of their activity-based costing analysis (Exhibit 1), adding to that review some information related to the different cost classifications they had used at different points in time, for different purposes. They wondered how to use this information to quantify the profit impact of dropping the custom gym bag product line. If they used the product costs from the activity-based costing analysis, a preliminary analysis (Table 1) suggested that dropping the product line would decrease profit by only $650 per month: Table 1. Profit per unit. Per unit Price per unit $120.00 Cost per unit 118.70 Profit per unit 1.30 Number of units 500 Total profit $650 Source: Created by author Was it really that simple? West didn't think so. As he thought about what made up the $118.70 per unit in costs, he wasn't convinced that they would save that much per unit if they dropped the custom bag product line. They employed two full-time sales representatives, and they certainly wouldn't eliminate one of those positions. And the other manufacturing overhead and the administrative costs, which were driven by orders, might decrease some since they would be processing fewer small orders. But they would still incur those costs to process orders of the basic gym bags. He wasn't quite sure how to incorporate all of that thinking into their analysis. Basic Custom Cost behavior Manufacturing or nonmanufacturing Direct or indirect $ 30.00 $ 35,00 20.00 Variable Variable Manufacturing Manufacturing Direct Direct 15.00 Direct material Direct labor Manufacturing overhead Rent Depreciation Electricity Other manufacturing overhead Total Total manufacturing costs 2.45 1.60 4.20 1.60 3.60 Fixed Fixed Mixed @) Mixed (b) Manufacturing Manufacturing Manufacturing Manufacturing Indirect Indirect Indirect Indirect 3.60 18.80 7.05 14.70 59.70 28.20 83.20 10.00 12.00 Variable Nonmanufacturing Direct Sales commissions Nonmanufacturing overhead Sales Administrative Other Total Total nonmanufacturing costs Total costs 12.50 8.00 3.00 23.50 35.50 Fixed Fixed Fixed Nonmanufacturing Nonmanufacturing Nonmanufacturing 3.125 3.00 3.00 9.125 19.125 $ 78.825 Indirect Indirect Indirect $ 118.70 ACCT-240 Case Study 4 1. What are the advantages and disadvantages of activity-based-costing? 2. What are the advantages and disadvantages of traditional costing? 3. For West to be willing to end the product line, how much fixed costs would he need to get rid of? 4. Table 1 shows the custom bags have a cost of $117.80 per unit. West isn't sure if that's true or not. How would ending the custom bag product line impact profits? 5. (This problem requires CVP) Assuming they would not have a decrease in fixed costs resulting from ending the custom product line and assuming that stopping that production would free capacity that might be used to produce basic gym bags: How many more basic gym bags will the company need to produce and sell for it to make sense to drop the other line?||