Payton 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 al capacity. The exquipment 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 le immediately shipped to a wholesaler. Shipping costs vary with the number of shipments. Budgeted information for the year is as follows: 1. Identify the cast 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. Payton Bags Budget for Costs and Activities For the Year Ended February 28, 2014 Cost Direct materials-purses Direct materials-backpacks Direct labor-purses Direct labor-backpacks Setup Shipping Design Cost Hierarchy Level Direct materials Direct labor Setup Shipping Design Plant utilities and administration Total costs Direct materials-purses Direct materials-backpacks Direct manufacturing labor-purses $ 396,000 442,500 115,200 Direct manufacturing labor-backpacks Setup 115,050 163,280 DM-purses DM-backpacks Shipping 74,880 DL purses Design Plant utilities and administration 169,000 DL-backpacks 216,000 Setup costs $ 1,691,910 Total Shipping costs Backpacks Purses Total Design costs Number of bags 5,900 Hours of production Number of batches 1,425 3,600 2,575 9,500 4,000 Plant util, and admin. 158 50 ZDB Number of designs 2 2 1 Plant utilities and administration Cost Total quantity of cost driver= Cost driver rate Cost Driver Quanlity of Rate x Cost Driver Backpacks Total costs Number of bags produced = Cost per bag $ Purses 819,350 + 718,200 + 6,300 backpacks 3.150 purses