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 $ 319,155 Direct materials-backpacks Direct manufacturing labor-purses Direct manufacturing labor-backpacks Setup Shipping Design Plant utilities and administration 454,995 99,000 113,000 64,000 73,000 169,000 221,000 $1,513,150 Total Other budget information follows: Backpacks 6,175 Purses Total 3,075 Number of bags Hours of production 9,250 1,665 2,585 4,250 Number of batches 120 80 200 Number of designs 4
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 $ 319,155 Direct materials-backpacks Direct manufacturing labor-purses Direct manufacturing labor-backpacks Setup Shipping Design Plant utilities and administration 454,995 99,000 113,000 64,000 73,000 169,000 221,000 $1,513,150 Total Other budget information follows: Backpacks 6,175 Purses Total 3,075 Number of bags Hours of production 9,250 1,665 2,585 4,250 Number of batches 120 80 200 Number of designs 4
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q.Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.
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