Question

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. TE 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 year is as follows: (Click the icon to view the budgeted information.) Read the requirements.

Answer 1

Pink Bags Requirement 1 Cost Direct materials-purses Direct materials-backpacks Direct labor-purses Direct labor-backpacks Setup Shipping Design Plant utilities and administration Cost Hierarchy Level Output unit-level cost Output unit-level cost Output unit-level cost Output unit-level cost Batch-level cost Batch-level cost Product-sustaining cost Facility-sustaining cost Requirement 2 Cost Direct materials-purses Direct materials-backpacks Direct labor-purses Direct labor-backpacks Setup Shipping Design Plant utilities and administration Cost Driver Number of purses Number of backpacks Number of purses Number of backpacks Number of batches Number of batches Number of designs Hours of production Reason The cost is determined by the number of output. The cost is determined by the number of output. The cost is determined by the number of output. The cost is determined by the number of output. The cost is determined by the number of batches The cost is determined by the number of batches. The cost is determined by the number of designs. The more the machines are used the higher the cost. Requirement 3 Formula: Cost/Total quantity of cost driver=cost driver rate Cost Direct materials-purses $3,23,200 Direct materials-backpacks 4,56,000 Direct labor-purses 1,02,400 Direct labor-backpacks 99,000 Setup costs 17,000 Shipping costs 73,000 Design costs 1,66,000 Plant. Util and Admin 2,12,000 Total quantity of cost driver cost driver rate 3,200 101.00 6,000 76.00 3,200 32.00 6,000 16.50 200 85 200 365 41500 4,000 53 per purse per backpack per purse per backpack per batch per batch per design per hour Requirement 4 Total Direct materials Direct labor Setup Shipping Design Plant utilities and administration Total costs Cost per backpack and cost per purse Backpacks 4,56,000 99,000 10,200 43,800 83,000 79,500 7,71,500 129 Purses $3,23,200 1,02,400 6,800 29,200 83,000 1,32,500 6,77,100 211.59375 5. Based on this analysis, more than 50% of product cost relates to direct materials. Managers should determine whether the material costs can be reduced. Producing in small lots increases (will increase) the setup and shipping costs. While both are relativelysmall components of product cost, management may want to evaluate