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 $75 per unit. Workers on the production lines are on average paid $14 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 $5,110 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,730.Factory janitorial costs are $1,550 monthly. Advertising costs for the audio system will be $9,290 per month. The factory building depreciation expense is $6,600 per year. Property taxes on the factory building will be $8,760 per year.Compute the cost to produce one audio system. (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

The cost to produce one audio system is $22,105.00. This is calculated by adding up all direct and indirect costs involved in the production process, such as raw materials, labor, rent, supervisor's salary, janitorial costs, advertising costs, depreciation expense, and property taxes.

Step-by-step explanation:

The direct costs include the raw materials cost of $75 per unit and the workers' wages. The workers are paid $14 per hour, and it takes 5 hours to complete an audio system. Therefore, the direct labor cost per unit is $14 multiplied by 5, which equals $70. The indirect costs include the monthly rent on the equipment, which is $5,110; the supervisor's monthly salary, which is $3,730; the monthly factory janitorial costs, which are $1,550; and the monthly advertising costs, which amount to $9,290.

Additionally, we need to consider the factory building depreciation expense, which is $6,600 per year, and the property taxes on the factory building, which are $8,760 per year. To calculate the monthly depreciation expense, we divide the annual depreciation expense by 12, which equals $6,600 divided by 12, resulting in $550 per month. Similarly, to calculate the monthly property taxes expense, we divide the annual property taxes by 12, which equals $8,760 divided by 12, resulting in $730 per month. Finally, we add up all these indirect costs to find the total monthly indirect cost, which is $5,110 plus $3,730 plus $1,550 plus $9,290 plus $550 plus $730, totaling $21,960.

To compute the cost to produce one audio system, we add the direct costs and the indirect costs. The total cost to produce one audio system is $75 for raw materials, $70 for direct labor, and $21,960 for indirect costs. Therefore, the cost to produce one audio system is $75 plus $70 plus $21,960, which equals $22,105.00.