Pink 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: REQUIREMENTS Pink Bags Budget for Costs and Activities For the Year Ended February 28, 2014 Direct materials-purses Direct materials-backpacks $ 317,200 456,250 Direct manufacturing labor-purses 97,600 Direct manufacturing labor-backpacks 109,375 Setup 129,390 Shipping 73,910 Design 167,500 243,000 Plant utilities and administration $ 1,594,225 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. Total Calculate the budgeted cost per unit of cost driver for each cost category. Other budget information follows: 4. Backpacks Purses Total 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. Number of bags Hours of production 6,250 3,050 9,300 1,450 2,600 4,050 Number of batches 140 50 190 Number of designs 3 2 5