Question

On January 1st, 2002, the Grind Company acquired a machine for its production process. The machine's cash price was $35,000, and additional costs included $175 for shipping, $75 for insurance during shipping, $50 for installation and testing, and $90 for oil and lubricants to be used during the first year of operations.

The company estimates the machine's useful life to be four years, with a residual value of $5,000. In terms of activity, the estimated useful life is 25,000 units. Actual usage for each year is as follows: 6,500 units in 2002, 7,500 units in 2003, 6,000 units in 2004, and 5,000 units in 2005.

1. Calculate the capital cost of the machine as of January 1, 2002. Please provide your solution or calculation steps.

Answer 1

The capital cost of the machine as of January 1, 2002, is calculated by adding the cash price of the machine to all additional costs like shipping, insurance, installation, and lubricants, totaling $35,390.

Step-by-step explanation:

To calculate the capital cost of the machine as of January 1, 2002, you need to add the initial cash price of the machine to all the additional costs incurred to get the machine ready for use. These costs include shipping, insurance during shipping, installation and testing, and the cost of oil and lubricants used during the first year of operation. Here is the calculation:

• Cash price of the machine: $35,000
• Shipping: $175
• Insurance during shipping: $75
• Installation and testing: $50
• Oil and lubricants for the first year: $90

Adding these amounts together gives:

$35,000 + $175 + $75 + $50 + $90 = $35,390

Therefore, the capital cost of the machine as of January 1, 2002, is $35,390.