Pastel Bags Budget for Costs and Activities For the Year Ended February 28, 2017 Direct materials-purses $ 319,155 Direct materials-backpacks Direct manufacturing labor-purses Direct manufacturing labor-backpacks Setup Shipping Design 454,995 99,000 113,000 64,000 73,000 169,000 Plant utilities and administration 221,000 Total $1,513,150 Other budget information follows: Purses 3,075 2,585 80 Backpacks 6,175 Total 9,250 Number of bags Hours of production Number of batches Number of designs 4,250 1,665 120 200 4 2 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 driver. 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. Required
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 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:
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