I'm going to get up on my soapbox because I believe that knitters regularly undervalue their work.
IMHO, $20 is way too low for a handknitted or crocheted bag. Even if you could make one in 2 hours, and even you omitted embellishments, clasps, handles, etc., why would you want to work for less than minimum wage? I assume you want to make a profit on your bags. Not likely for $5 an hour!
Remember: you're not churning out piecework; you're selling original designs made by talented craftspeople. Nobody else can offer customers exactly what you do. The problem with charging by the hour is that slow knitters would earn more than speedy ones. Not exactly fair. And the problem with charging for the yarn is that it takes exactly as much effort to knit with Peaches 'n' Creme as it does with cashmere. It's not the price of the yarn that counts -- it's how you transform it into something valuable through your creativity and artistry.
The best formula I've seen for pricing handknits is here:
You might also check similar items on etsy.com and get an idea of what other people are charging.
Good luck with your venture and, to quote Elizabeth Zimmerman, "Help me off my soapbox,."