**Petal Bags (PB) Cost Analysis Exercise** **Background:** Petal Bags (PB) is a designer of high-quality backpacks and purses. Each design is produced in small batches, with new designs introduced each spring. PB uses these designs for a year before moving on to a new set. The production operates at full capacity using the same fabrication equipment, which must be updated with each new design. After production, each batch is immediately shipped to a wholesaler, with shipping costs depending on shipment numbers. Below is the budgeted information for the year. ### Requirements **Requirement 1: Identify the cost hierarchy level for each cost category.** | Cost | Cost Hierarchy Level | |--------------------------------------|----------------------| | Direct materials—purses | (1) | | Direct materials—backpacks | (2) | | Direct labor—purses | (3) | | Direct labor—backpacks | (4) | | Setup | (5) | | Shipping | (6) | | Design | (7) | | Plant utilities and administration | (8) | **Requirement 2: Identify the most appropriate cost driver for each cost category. Provide a brief explanation for your choice of cost driver.** | Cost | Cost Driver | Reason | |--------------------------------------|-------------|---------------| | Direct materials—purses | (9) (10) | | | Direct materials—backpacks | (11) (12) | | | Direct labor—purses | (13) (14) | | | Direct labor—backpacks | (15) (16) | | | Setup | (17) (18) | | | Shipping | (19) (20) | | | Design | (21) (22) | | | Plant utilities and administration | (23) (24) | | **Requirement 3: Calculate the budgeted cost per unit of cost driver for each cost category.** - Round the cost driver rates to four decimal places. - Abbreviations: "util." = utilities, "admin." = administration, "DM" = direct materials, "DL" = direct labor. | Cost Category | Calculation | Cost Driver Rate | |--------------------------------|------------------------------------|---------------- **Educational Content Transcription: Cost Analysis and Budgeting** **Chapter 5 - Homework** **Requirement 4: Calculating Total Costs and Cost per Unit** You are tasked with calculating the budgeted total costs and cost per unit for each product line: Backpacks and Purses. | | Backpacks | Purses | |---------------------|-----------|--------| | Direct materials | | | | Direct labor | | | | Setup | | | | Shipping | | | | Design | | | | Plant utilities and administration | | | | **Total costs** | | | - The cost per backpack is __________ and the cost per purse is __________. **Requirement 5: Cost Reduction Analysis** Analyze how the data from Requirement 4 can be used to reduce costs. Note the following: 1. Over 50% of product cost is due to ________________. Producing in small lots will _______________________. 2. Management should evaluate ways to reduce small components like _______________. 3. Consider reviewing the design process for cost savings and examine why production takes too long. **Data Table Explanation** **Petal Bags: Budget for Costs and Activities** For the Year Ended February 29, 2020 - **Direct materials—purses**: $317,200 - **Direct materials—backpacks**: $456,250 - **Direct manufacturing labor—purses**: $97,600 - **Direct manufacturing labor—backpacks**: $109,375 - **Setup**: $129,390 - **Shipping**: $73,910 - **Design**: $167,500 - **Plant utilities and administration**: $243,000 - **Total**: $1,594,225 - **Other Budget Information**: | | Backpacks | Purses | Total | |---------------|-----------|--------|-------| | Number of bags | 6,250 | 3,050 | 9,300 | | Hours of production | 1,450 | 2,600 | 4,050 | | Number of batches | 140 | 50 | 190 | | Number of designs | 3 | 2 | 5 | This table details the budgeted costs