Question

Question 11 Larkspur Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2017 Purchase Cash paid for equipment, including sales tax of $ 6,100 Freight and insurance cost while in transit Cost of moving equipment into place at factory Wage cost for technicians to test equipment Insurance premium paid during first year of operation on this equipment Special plumbing fixtures required for new equipment Repair cost incurred in first year of operations related to this equipment $128,100 2.440 3,782 4,880 1,830 9,760 1,586 Construction Material and purchased parts (gross cost $ 244,000; failed to take 2% cash discount) Imputed interest on funds used during construction (stock financing) Labor costs Allocated overhead costs (fixed-$ 24,400; variable-$ 36,600) Profit on self-construction Cost of installing equipment $ 244,000 17,080 231,800 61,000 36,600 5,368 Compute the total cost for each of these two pieces of equipment. Purchase equipment $ Construction equipment

Answer 1

Answer:-

The cost of acquiring an asset includes costs necessary to bring it to the condition and location neccssary for its intended use.

Purchase price is calculated as follows:-

Cash paid for equipment including sales tax:- $128,100

Add:-1.Freight and insurance cost while in transit:- 2,440

2.Cost of moving equipment into place at factory 3,782

3.Wage cost for technicians to test the equipment 4,880

4.Special plumbing fixtures required for the equipment 9,780

Total purchase price:- $148,982

Notes:-Insurance premium paid during the first year of operation on this equipment and repair cost incurred in the first year for the equipment are not to be capitalized as these have economic benefit of only one year.

Construction price is calculated as follows:-

Material and purchased parts:- $244,000

Add:-Labor costs 231,800

Allocated overhead costs 61,000

Cost of installing equipment 5,368

Total Construction Cost $542,168

Note:-Imputed interest during construction and profit on self construction are not to be capitalized.However, if interest was paid for funds borrowed from outside,the same was to be capitalized.