Question

Pearl 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 $6,200 $130,200
Freight and insurance cost while in transit 2,480
Cost of moving equipment into place at factory 3,844
Wage cost for technicians to test equipment 4,960
Insurance premium paid during first year of operation on this equipment 1,860
Special plumbing fixtures required for new equipment 9,920
Repair cost incurred in first year of operations related to this equipment 1,612
Construction
Material and purchased parts (gross cost $248,000; failed to take 2% cash discount) $248,000
Imputed interest on funds used during construction (stock financing) 17,360
Labor costs 235,600
Allocated overhead costs (fixed-$24,800; variable-$37,200) 62,000
Profit on self-construction 37,200
Cost of installing equipment 5,456
Compute the total cost for each of these two pieces of equipment.
Purchase equipment $_____
Construction equipment $_____

Answer 1

i. The total cost for Purchase equipment

Particulars Amount

Cash paid for equipment, including $130,200

sales tax of $6,200

Freight and insurance cost while $2,480

in transit

Cost of moving equipment into $3,844

place at factory

Wage cost for technicians to test $4,960

equipment

Special plumbing fixtures required for $9,920

new equipment

Total Purchase cost $151,404

ii.The total cost of construction price of equipment

Particulars Amount

Material and purchase part $245,520

Labor Cost $235,600

Overhead Cost $62,000

Cost of Installing equipment $5,456

total cost of construction price of equipment $548,576

Workings

Material and purchased parts = Gross cost - Cash discount on gross cost

=$248,000 - (1%*$248,000)

=$248,000 - $2480

=$245,520