Papaya

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 that 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:

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 reduce costs.

Papaya Bags Budget for Costs and Activities For the Year Ended February 28, 2014 Direct materialspurses $323,200 Direct materialsbackpacks 456,000 Direct manufacturing laborpurses 102,400 Direct manufacturing laborbackpacks 99,000 Setup 17,000 Shipping 73,000 Design 166,000 Plant utilities and administration 212,000 Total $1,448,600 Other budget information follows: Backpacks Purses Total Number of bags 6,000 3,200 9,200 Hours of production 1,500 2,500 4,000 Number of batches 120 80 200 Number of designs 2 2 4