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Problem 1-2A (Video) Bell Company, a manufacturer of audio systems, started its production in October 2020
Problem 1-2A (Video)Bell Company, a manufacturer of audio systems, started its production in October 2020. 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 material costs for an audio system will total $77 per unit. Workers on the production lines are on average paid $15 per hour. An audio system usually takes 7 hours to complete. In addition, the rent on the equipment used to assemble audio systems amounts to $6,000 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,800. Factory janitorial costs are $2,200 monthly. Advertising costs for the audio system will be $9,200 per month. The factory building depreciation expense is $6,000 per year. Property taxes on the factory building will be $9,600 per year. |
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Assuming that Bell manufactures, on average, 1,000 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.
Compute the cost to produce one audio system. (Round answer to 2 decimal places, e.g. 15.25.)
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Expert Solution
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Product Costs
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Cost Item |
Direct
Materials |
Direct
Labor |
Manufacturing
Overhead |
Period
Costs |
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| Raw materials |
$
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$
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$
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$
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| Wages for workers |
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| Rent on equipment |
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| Indirect materials |
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| Factory supervisor’s salary |
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| Janitorial costs |
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| Advertising |
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| Depreciation on factory building |
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| Property taxes on factory building |
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$
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$
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$
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$
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Production cost per system$
Explanation:
| Raw materials | = | $77 × 1,000 | = | $77,000 |
| Wages for workers | = | $15 × 7 × 1,000 | = | $105,000 |
| Indirect materials | = | $5 × 1,000 | = | $5,000 |
| Depreciation on factory building | = | $6,000/12 | = | $500 |
| Property taxes on factory building | = | $9,600/12 | = | $800 |
[(MOH: $6,000 + ($5 x 1,000) + $3,800 + $2,200 + ($6,000/12) + ($9,600/12) = $18,300); (Period costs: $9,200)]
[(MOH: Rent, equip. + (Ind. mat. cost/system x No. systems) + Fact. super. sal. + Jan. costs + (Ann. depr./Mos. in a yr.) + (Ann. prop. tax./Mos. in a yr.) = Tot.); (Period costs: Advert.)]
| Total production costs | ||
| Direct materials | $77,000 | |
| Direct labor | 105,000 | |
| Manufacturing overhead | 18,300 | |
| Total production cost | $200,300 |
Production cost per system = $200,300/1,000 = $200.30
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