Payton 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: 1(Click the icon to view the budgeted information.) Read the requirements2. 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. Explain briefly 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 used: "util." = utilities, "admin." = administration, "DM" = direct materials, "DL" = direct labor.) (25) ÷ (26) = Cost driver rate DM—purses ÷ = (27) DM—backpacks ÷ = (28) DL—purses ÷ = (29) DL—backpacks ÷ = (30) Setup costs ÷ = (31) Shipping costs ÷ = (32) Design costs ÷ = (33) Plant util. and admin. ÷ = (34) Requirement 4. Calculate the budgeted total costs and cost per unit for each product line. Backpacks Direct materials Direct labor Setup Shipping Design Plant utilities and administration Total costs Purses The cost per backpack is and the cost per purse is . Requirement 5. Explain how you could use the information in requirement 4 to reduce costs. Based on this analysis, over 50% of product cost relates to (35) Producing in small lots will (36) Management may want to evaluate ways to reduce the smaller components like the (37) to further reduce costs. Finally, management should review the design process for cost savings and examine why it takes so long to produce (38) 1: Data Table Payton Bags Budget for Costs and Activities For the Year Ended February 28, 2014 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 follows: 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 2: Requirements 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

Payton 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: 1(Click the icon to view the budgeted information.) Read the requirements2. 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. Explain briefly 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 used: "util." = utilities, "admin." = administration, "DM" = direct materials, "DL" = direct labor.) (25) ÷ (26) = Cost driver rate DM—purses ÷ = (27) DM—backpacks ÷ = (28) DL—purses ÷ = (29) DL—backpacks ÷ = (30) Setup costs ÷ = (31) Shipping costs ÷ = (32) Design costs ÷ = (33) Plant util. and admin. ÷ = (34) Requirement 4. Calculate the budgeted total costs and cost per unit for each product line. Backpacks Direct materials Direct labor Setup Shipping Design Plant utilities and administration Total costs Purses The cost per backpack is and the cost per purse is . Requirement 5. Explain how you could use the information in requirement 4 to reduce costs. Based on this analysis, over 50% of product cost relates to (35) Producing in small lots will (36) Management may want to evaluate ways to reduce the smaller components like the (37) to further reduce costs. Finally, management should review the design process for cost savings and examine why it takes so long to produce (38) 1: Data Table Payton Bags Budget for Costs and Activities For the Year Ended February 28, 2014 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 follows: 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 2: Requirements 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Payton

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:

1(Click

the icon to view the budgeted information.)

Read the

requirements2.

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. Explain briefly 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 used: "util." = utilities, "admin." = administration, "DM" = direct materials, "DL" = direct labor.)

(25)

(26)

Cost driver rate

DM—purses

(27)

DM—backpacks

(28)

DL—purses

(29)

DL—backpacks

(30)

Setup costs

(31)

Shipping costs

(32)

Design costs

(33)

Plant util. and admin.

(34)

Requirement 4. Calculate the budgeted total costs and cost per unit for each product line.

	Backpacks
Direct materials
Direct labor
Setup
Shipping
Design
Plant utilities and administration
Total costs

Purses

The cost per backpack is

and the cost per purse is

Requirement 5. Explain how you could use the information in requirement 4 to reduce costs.

Based on this analysis, over 50% of product cost relates to

(35)

Producing in small lots will

(36)

Management may want to evaluate ways to reduce the smaller components like the

(37)

to further reduce costs. Finally, management should review the design process for cost savings and examine why it takes so long to produce

(38)

1: Data Table

Payton Bags
Budget for Costs and Activities
For the Year Ended February 28, 2014
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 follows:

	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

2: Requirements

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

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