Question:

Bag-packer is a designer of high quality backpacks and clutches. Each design is made in small batches. Each spring, Bag-packer came out with new design for the backpacks and clutches. They use these designs for a 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 product is immediately shipped to a wholesaler.

Shipping cost vary with the number of shipments. Budgeted information for the year is as follows:

Bag-packer

Budgeted Costs and Activities

For the year ended April 30, 2021

$

Direct Materials- Backpacks 450,000

Direct Materials- Clutches 360,000

Direct Manufacturing Labor

Backpacks 120,000

Direct Manufacturing Labor- Clutches 95,000

Setup 75,000

Shipping 82,000

Design 155,000

Plant Utilities & Administration 236,000

Total 1,573,000

Other Information:

Backpacks Clutches

Hours of Production 1,450 1,300

Number of Designs 6 4

Number of Batches 150 90

Number of Bags 5,500 3,500

Instructions:

i. Under the simple costing Bag-Packer allocates indirect costs based on hours of production. Calculate the budgeted costs of each product under simple costing system. (5)

ii. Choose a cost driver for the indirect costs and calculate cost per unit (activity-rate) of the cost driver. (5)

iii. Calculate the total cost and per unit cost for each product line under ABC. (5)

iv. What new information Bag-Packer can get by using ABC? (2)