Required:

a) Identify the cost hierarchy level for each cost category.

b) Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.

c) Calculate the budgeted cost per unit of cost driver for each cost category.

d) Calculate the budgeted total costs and cost per unit for each product line.

e) Explain how you could use the information in requirement 4 to reduce costs.

Question 5 Activity Based Costing MaxPak is a designer of high-quality backpacks and purses. Each design is made in small batches. Each summer, MaxPak 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: MaxPak Budget for costs and Activities For the Year Ended 30 June 2020 Direct materials-purses $379,290 Direct materials-backpacks 412,920 Direct manufacturing labour - purses 98,000 Direct manufacturing labour -backpacks 120,000 Setup 65,930 Shipping 73,910 Design 166,000 Plant utilities and administration 243,000 Total $1,559,050 Other Budget information follows: Backpacks Purses Number of bags 6,050 3,350 Hours of production 1,450 2,600 Number of batches 130 60 Number of designs 2 2