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 next financial year is: Pastel Bags: budgeted costs and activities Direct materials—purses $319 155 Direct materials—backpacks 454 995 Direct production labour—purses 99 000 Direct production labour—backpacks 113 000 Set-up 64 000 Shipping 73 000 Design 169 000 Plant utilities and administration 221 000 Total $1 513 150 Other budget information follows: Backpacks Purses Total Number of bags 6 175 3 075 9 250 Hours of production 1 665 2 585 4 250 Number of batches 120 80 200 Number of designs 2 2 4 Required Prepare a report of the budgeted total costs and cost per unit for each product line using the ABC system for presentation to management. In the report: (1) identify the activity-cost drivers that you have selected and the related level in the hierarchy of activities, together with an explanation; (2) recommend to managers how they could use the information to reduce costs.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

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 next financial year is:

Pastel Bags: budgeted costs and activities
Direct materials—purses	$319 155
Direct materials—backpacks	454 995
Direct production labour—purses	99 000
Direct production labour—backpacks	113 000
Set-up	64 000
Shipping	73 000
Design	169 000
Plant utilities and administration	221 000
Total	$1 513 150

Other budget information follows:

	Backpacks	Purses	Total
Number of bags	6 175	3 075	9 250
Hours of production	1 665	2 585	4 250
Number of batches	120	80	200
Number of designs	2	2	4

Required

Prepare a report of the budgeted total costs and cost per unit for each product line using the ABC system for presentation to management. In the report: (1) identify the activity-cost drivers that you have selected and the related level in the hierarchy of activities, together with an explanation; (2) recommend to managers how they could use the information to reduce costs.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions