Question

Exercise 10-2

Pharoah Corp., a public company located in Manitoba, both purchases and constructs various pieces of machinery and equipment that it uses in its operations. The following items are for machinery that was purchased and a piece of equipment that was constructed during the 2020 fiscal year:

Machinery
Cash paid for machinery, including sales tax of $10,150 and recoverable GST of $7,250		$162,400
Freight and insurance cost while in transit		2,630
Cost of moving machinery into place at factory		3,400
Wage cost for technicians to test machinery		4,200
Materials cost for testing		580
Insurance premium paid on the machinery for its first year of operation		1,600
Special plumbing fixtures required for new machinery		8,390
Repair cost on machinery incurred in first year of operations		1,500
Cash received from provincial government as incentive to purchase machinery		25,700

Equipment (Self-Constructed)
Material and purchased parts (gross cost $203,000; failed to take 2% cash discount; the company uses the net method of recording purchases of material and parts)		$203,000
Imputed interest on funds used during construction (Note: The company has no borrowing costs but it has calculated imputed interest on its equity/ share financing)		14,500
Labour costs for manufacturing the equipment		190,000
Overhead costs (fixed $19,500; variable $32,600)		52,100
Profit on self-construction		29,800
Cost of installing equipment		4,100

Calculate the cost of the machinery and the cost of the equipment.

(a)		Cost of the machinery		$enter a dollar amount
(b)		Cost of the equipment		$enter a dollar amount

Answer 1

Computation of Cost of Machinery
Cash Paid For Equipment	$162,400.00
Freight And Insurance Cost While In Transit	$2,630.00
Cost Of Moving Equipment Into Place At Factory	$3,400.00
Wage Cost For Technicians To Test Equipment	$4,200.00
Special Plumbing Fixtures Required For New Equipment	$8,390.00
Cash Received from Provincial Government as incentive to Purchase machinery	-$1,500.00
Total Cost Of Purchase Equipment	$179,520.00
Computation of Cost of Equipment
Material and purchased parts	$203,000.00
Discount (203000X2%)	-$4,060.00
Labor costs	$190,000.00
Allocated overhead costs	$52,100.00
Cost of installing equipment	$4,100.00
Total Cost of Construction Equipment	$445,140.00