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Elliott Company 23

Price: $2.50

Elliott Company, a manufacturer of tennis rackets, started production in November
2013. For the preceding 5 years, Elliott had been a retailer of sports equipment. After a
thorough survey of tennis racket markets, Elliott decided to turn its retail store into a tennis
racket factory.

Raw materials cost for a tennis racket will total $23 per racket. Workers on the production
lines are paid on average $15 per hour. A racket usually takes 2 hours to complete.
In addition, the rent on the equipment used to produce rackets amounts to $1,300 per
month. Indirect materials cost $3 per racket. A supervisor was hired to oversee production;
her monthly salary is $3,500.

Janitorial costs are $1,400 monthly. Advertising costs for the rackets will be $8,000 per
month. The factory building depreciation expense is $8,400 per year. Property taxes on the
factory building will be $9,600 per year.

(a) Prepare an answer sheet with the following column headings.
Product Costs
Cost Direct Direct Manufacturing Period
Item Materials Labor Overhead Costs

Assuming that Elliott manufactures, on average, 2,500 tennis rackets 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 racket.

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