Question

Sunland Company, a manufacturer of audio systems, started its production in October 2020. For the preceding 3 years, Sunland had been a retailer of audio systems. After a thorough survey of audio system markets, Sunland 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 $13 per hour. An audio system usually takes 6 hours to complete. In addition, the rent on the equipment used to assemble audio systems amounts to $5,100 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,700.

Factory janitorial costs are $2,000 monthly. Advertising costs for the audio system will be $9,000 per month. The factory building depreciation expense is $6,000 per year. Property taxes on the factory building will be $8,400 per year.

Assuming that Sunland 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.

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
		$		$		$		$

Compute the cost to produce one audio system.

Answer 1

Solution:

Cost items	Direct materials	Direct labor	Manufacturing overhead	Period cost
Raw materials	$77,000(1,000 × $77)
Wages for workerd		$78,000(1000 × 6 × $13)
Rent on equipment			$5,100
Indirect materials			$5,000 (1,000 × $5)
Factory supervisor's salary			$3,700
Janitorial cost			$2,000
Advertising				$9,000
Depreciation on factory building			$500 ($6,000 ÷ 12 months)
Property tax on Factory building			$700 ($8,400 ÷ 12 months)
	$77,000	$78,000	$17,000	$9,000

Cost to produce one audio system:

Total production cost:
Direct materials	$77,000
Direct labor	$78,000
Manufacturing overhead	$17,000
Total cost	$172,000
Total audio system	1,000
Cost to produce one audio system (Total cost / Total units)	$172 ($172,000 / 1,000 audio system)