Petunia 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. They use these designs for one year and then move 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:

Petunia Bags Budgeted for Costs and Activities For the Year Ending February 28, 2013 Direct materials - purses $ 360,000 Direct materials - backpacks 431,000 Direct labour - purses 103,000 Direct labour - backpacks 117,000 Setup 65,930 Shipping 73,910 Design 165,000 236,600 Plant utilities and administration $ 1,552,440 Total Other information: Backpacks Purses Total Number of bags 6,150 3,025 9,175 Hours of production 1,600 2,625 4,225 Number of batches 130 60 190 Number of designs 4 2 6 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 cost per unit of cost driver for each cost category. 4. Calculate the total costs and the cost per unit for each product line. 5. Explain how you could use the information in requirement 4 to reduce costs