Pumpkin 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:

Pumpkin Bags Budget for Costs and Activities For the Year Ended February 28, 2014 Direct materials-purses Direct materials-backpacks Direct manufacturing labor-purses Direct manufacturing labor-backpacks Setup Shipping Design 317,200 456,250 97,600 109,375 129,390 73,910 167,500 243,000 1,594,225 Plant utilities and administration $ Total Other budget information follows: Backpacks Purses Total Number of bags 6,250 3,050 9,300 Hours of production 1.450 2.600 4,050 Number of batches 14050 Number of designs 32 190 0 Requirements 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. Print Done