Pumpkin 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. They use these designs for one year and then move 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: Required 1. Calculate the cost per unit of cost driver for each cost category. 2. Calculate the total costs and cost per unit for each product line. 3. Explain how you could use the information in requirement 4 to reduce costs.
Pumpkin 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. They use these designs for one year and then move 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:
Required
1. Calculate the cost per unit of cost driver for each cost category.
2. Calculate the total costs and cost per unit for each product line.
3. Explain how you could use the information in requirement 4 to reduce costs.
![n:
Pumpkin Bags
Budgeted Costs and Activities
for the Year Ended February 28
Direct materials purses
Direct materials backpacks
Direct labour-purses
Direct labour-backpacks
Setup
Shipping
Design
Plant utilities and administration
Total
Number of bags
Hours of production
Number of batches
Number of designs
Backpacks
6,000
1,560
133
3
$362,000
427,000
98,000
115,597
64,960
72,065
167,000
225,000
$1,531,622
Purses Total
3,150
9,150
2,600
4,160
203
70
2
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