ACC 550- 6-2 question 3 part 3

Petunia 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 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 yea is as follows: B (Click the icon to view the budgeted information.) Read the requirements. Design costs $ 167,500 - 5= $ 33,500.00 perdesign Plant util. and admin. $ 243000 - 4,050 $ 60.00 per hour Requirement 4. Calculate the budgeted total costs and cost per unit for each product line. (Round the cost per unit amounts to the nearest cent, X XX) Backpacks Purses Direct materials $ 456,250 $ 317,200 Direct labor 109,375 97,600 Setup 95,340 34,050 Shipping 54,460 19,450 Design 100,500 67,000 Plant utilities and administration 87,000 156,000 $ 902,925 $ 691,300 Total costs The cost per backpackis $ 14447 and the costperpurseis & 226.66 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 direct materials. Producing in small lots will increase the setup and shipping costs. Management may want to evaluate ways to reduce the smaller components like the number of setups and the cost per setup to further reduce costs. Finally, management should review the design process for cost savings and examine why it takes so long to produce purses relative to backpacks.
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