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5-38 Choosing cost drivers, activity-based costing, activity-based management. Pastel 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 pro- duction 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: Pastel Bags Budget for Costs and Activities For the Year Ended February 28, 2017 Direct materials-purses Direct materials--backpacks Direct manufacturing labor-purses Direct manufacturing labor-backpacks Setup Shipping Design Plant utilities and administration Total $ 319,155 454,995 99,000 113,000 64,000 73,000 169,000 221,000 $1,513,150 ASSIGNMENT MATERI Other budget information follows: Total Number of bags Hours of production Number of batches Number of designs Backpacks 6,175 1,665 120 Purses 3,075 2,585 80 9,250 4,250 200 2 2 Requir 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 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. driver

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