Required 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 cost per unit of cost driver for each cost category. 4. Calculate the total costs and cost per unit for each product line. 5. Explain how you could use the information in requirement 4 to reduce costs. Check Figure: 3. Cost for setup, $320 per batch Other information: 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 $ 362,000 427,000 98,000 115,597 64,960 72,065 167,000 225,000 $1,531,622 Backpacks Purses Total Number of bags 6,000 3,150 9,150 Hours of production 1,560 2,600 4,160 Number of batches 133 70 203 Number of designs 3 2 5 5-36 Choosing cost drivers, activity-based costing, activity-based management. (LO 4, 5) 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: