Question

Bell Company, a manufacturer of audio systems, started its production in October 2017. For the preceding 3 years, Bell had been a retailer of audio systems. After a thorough survey of audio system markets, Bell decided to turn its retail store into an audio equipment factory.

Raw materials cost for an audio system will total $74 per unit. Workers on the production lines are on average paid $12 per hour. An audio system usually takes 5 hours to complete. In addition, the rent on the equipment used to assemble audio systems amounts to $4,900 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,000.

Factory janitorial costs are $1,300 monthly. Advertising costs for the audio system will be $9,500 per month. The factory building depreciation expense is $7,800 per year. Property taxes on the factory building will be $9,000 per year.

Assuming that Bell manufactures, on average, 1,500 audio systems per month, enter each cost item on your answer sheet, placing the dollar amount per month under the appropriate headings. Total the dollar amounts in each of the columns.

		Product Costs
Cost Item		Direct Materials		Direct Labor		Manufacturing Overhead		Period Costs
Raw materials		$		$		$		$
Wages for workers
Rent on equipment
Indirect materials
Factory supervisor’s salary
Janitorial costs
Advertising
Depreciation on factory building
Property taxes on factory building
		$		$		$		$

eTextbook and Media

  

  

Production cost per system

$

Answer 1

	Product Costs
	Direct Materials	Direct Labor	Manufacturing Overhead	Period Costs
Cost Item
Raw materials	1,500 x 74 = 111,000		$	$
Wages for workers		1,500 x 5 x 12 = 90,000
Rent on equipment			4,900
Indirect materials			1,500 x 5 = 7,500
Factory supervisor’s salary			3,000
Janitorial costs			1,300
Advertising				9,500
Depreciation on factory building			7,800/12 = 650
Property taxes on factory building			9,000/12 = 750
	$111,000	$90,000	$18,100	$9,500

Total production cost = Direct materials + Direct labor + Manufacturing overhead

= 111,000+90,000+18,100

= $219,100

Production cost per system = Total production cost/Number of units

= 219,100/1,500

= $146