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Unformatted text preview: er hour 5-38 4. Direct materials Direct manufacturing labor Setup ($320×133; 70) Shipping ($355×133; 70) Design ($33,400×3; 2) Plant utilit ies and administration ($54.0865×1,560; 2,600) Budgeted total costs ÷ Number of bags Budgeted cost per bag Backpacks $427,000 115,597 42,560 47,215 100,200, 84,375 $816,947 ÷ 6,000 $ 136.16 Purses $362,000 98,000 22,400 24,850 66,800 140,625 $714,675 ÷ 3,150 $ 226.88 Total $ 789,000 213,597 64,960 72,065 167,000 225,000 $1,531,622 5. Based on this analys is, over 50% of product cost relates to direct material. Managers should determine whether the material costs can be reduced. Producing in small lots increases the setup and shipping costs. While both are relatively small components of product cost, management may want to evaluate ways to reduce the number of setups and the cost per setup. Of the indirect costs, the product­ and facilit y­sustaining costs are the highest. Management should review the design process for cost savings and exami...
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