Question

Pronghorn 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 2020.

Purchase
Cash paid for equipment, including sales tax of $7,100		$149,100
Freight and insurance cost while in transit		2,840
Cost of moving equipment into place at factory		4,402
Wage cost for technicians to test equipment		5,680
Insurance premium paid during first year of operation on this equipment		2,130
Special plumbing fixtures required for new equipment		11,360
Repair cost incurred in first year of operations related to this equipment		1,846
Construction
Material and purchased parts (gross cost $284,000; failed to take 2% cash discount)		$284,000
Imputed interest on funds used during construction (stock financing)		19,880
Labor costs		269,800
Allocated overhead costs (fixed-$28,400; variable-$42,600)		71,000
Profit on self-construction		42,600
Cost of installing equipment		6,248

Compute the total cost for each of these two pieces of equipment.

Purchase Equipment :

Construction Equipment :

Answer 1

Solution:

1)The total purchase cost of equipment is calculated as follows:

Particulars	Amount
Cash paid for equipment including sales tax of $7,100	$149,100
Freight and insurance cost while in transit	$2,840
Cost of moving equipment into place at factory	$4,402
Wage cost for technicians to test equipment	$5,680
Special plumbing fixtures required for new equipment	$11,360
Total purchase cost of equipment	$173,382

2)The total cost of construction price of equipment is calculated as follows:

Particulars	Amount
Materials and purchase parts	$278,320
Labor cost	$269,800
Overhead costs	$71,000
Cost of installing equipment	$6,248
Total cost of construction piece equipment	$625,368

material and purchase parts = Gross cost - cash discount on gross cost

= 284,000 - (2% of 284,000)

= $284,000 - 5,680

=$278,320

Calculation of overhead cost is as follows:

Overhead costs = Fixed overhead cost + variable overhead cost

= $28,400 + $42,600 = $71,000

1)The total purchase cost of equipment is = $173,382

2) The total cost of construction price of equipment is =$635,368