Question

Anchor Company purchased a manufacturing machine with a list price of $97,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and transportation costs amounted to $4,600. Anchor paid $6,600 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $8,600 for the first year of operations. What is the cost of the machine?

a. $114,860

b. $106,260

c. $99,660

d. $95,060

Answer 1

The cost of the machine for Anchor Company is $106,260, which includes the purchase price after a 2% discount, transportation costs, and installation and testing fees, but excludes insurance costs.

Step-by-step explanation:

To calculate the cost of the machine purchased by Anchor Company, we need to take into account all costs that are necessary to get the machine ready for its intended use. This includes the purchase price after any discounts, transportation costs, installation and testing fees, but does not include insurance costs as they are considered future expenses rather than capitalizable costs.

The list price of the machine is $97,000 and Anchor received a 2% cash discount, reducing the purchase price by $1,940 ($97,000 x 0.02). Therefore, the purchase price after the discount is $95,060 ($97,000 - $1,940). The transportation cost FOB shipping point was $4,600 and the installation and testing fees were $6,600. The insurance costs do not factor in the cost of the machine, as insurance is expensed and not capitalized.

Adding these amounts together:

• Purchase price after discount: $95,060
• Transportation costs: +$4,600
• Installation and testing fees: +$6,600

The total cost of the machine for Anchor Company is therefore $106,260 ($95,060 + $4,600 + $6,600).