Question

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.

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.

		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
		$		$		$		$

Answer 1

	Product Costs
	Direct	Direct	Manufacturing	Period
Cost Item	Materials	Labor	Overhead	Costs
Raw materials	7,700
Wages for workers		105,000
Rent on equipment			6,000
Indirect materials			5,000
Factory supervisor’s salary			3,800
Janitorial costs			2,200
Advertising				9,200
Depreciation on factory building			500
Property taxes on factory building			800
	$7,700	$105,000	$18,300	$9,200

Direct labor rate = $15 per hour

Direct labor hour per unit = 7

Direct labor cost per unit = Direct labor rate x Direct labor hour per unit

= 15 x 7

= $105

Factory depreciation per year = $6,000

Factory depreciation per month = $6,000/12

= $500

Property taxes per year = $9,600

Property taxes per month = $9,600/12

= $800

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

= 7,700+105,000+18,300

= $131,000

Manufacturing cost per unit = Total manufacturing cost/ Number of units

= 131,000/1,000

= $131

The cost to produce one audio system $131.

Kindly comment if you need further assistance. Thanks