Kabana Company, a manufacturer of stereo systems, started its production in October 2012. For the preceding 3 years Kabana had been a retailer of stereo systems. After a thorough survey of stereo system markets, Kabana decided to turn its retail store into a stereo equipment factory.

Raw materials cost for a stereo system will total $74 per unit. Workers on the production lines are on average paid $12 per hour. A stereo system usually takes 5 hours to complete. In addition, the rent on the equipment used to assemble stereo 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 stereo system will be $8,500 per month. The factory building depreciation expense is $7,200 per year. Property taxes on the factory building will be $9,000 per year.

Instructions

(a) Prepare an answer sheet with the following column headings.

Assuming that Kabana manufactures, on average, 1,300 stereo 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.

(b) Compute the cost to produce one stereo system.