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• 5-36 Choosing Cost Drivers Activity-based Costing Activity-based Management

INSTANT DOWNLOADSolution Guide / Answer Key:5-36 Choosing cost drivers, activity-based costing, activity-based management.Pumpkin Bags (PB) is a designer of high quality backpacks and curses. 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.

5-36 Choosing Cost Drivers Activity-based Costing Activity-based Management

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:Pumpkin BagsBudgeted for costs and activities for theYear ended February 28,2011Direct materials – purses $379,290Direct materials – Backpacks 412,920Direct manufacturing labor – purses 98,000Direct manufacturing labor – backpacks 120,000Setup 65,930Shipping 73,910Design 166,000Plant utilities and admon. 243,000Total 1,559,050Other budget information follows:Backpacks Purses TotalNumber of bags 6,050 3,350 9,400Hours of production 1,450 2,600 4,050Number of batches 130 60 190Number of designs 2 2 411. Identify the cost hierarchy level for each cost category.22. Identify the most appropriate cost driver for each cost category. Explain briefly your choice of cost driver.33.

Calculate the budgeted cost per unit of cost driver for each cost category.44. Calculate the budgeted total costs and cost per unit for each product line.55. Explain how you could use the information in requirement 4 to reduce costs.