To automate one of its production processes, Milwaukee Corporation bought three

Question

To automate one of its production processes, Milwaukee Corporation bought three flexible manufacturing cells at a price of $500,000 each. When they were delivered, Milwaukee paid freight charges of $25,000 and handling fees of $12,000. Site preparation for these cells costs $35,000. Six foremen, each earning $15 an hour, each worked five-40 hour weeks to set up and test the manufacturing cells. Special wiring and other materials applicable to the new manufacturing cells cost $1500. Determine the cost basis (amount to be capitalized) for the three flexible manufacturing cells. Note: A cash flow diagram is not required.

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Explanation / Answer

Total cost will be the amount that hass to be capitalized

So now lets add all the costs one by one to get the Totla cost

Purchase cost of three flexible manufacturing cells at a price of $500,000 each = 3*$500,000 = $1500,000

Paid freight charges = + $25,000

Handling Fee = +   $12,000.

  Site preparation for these cells = + $35,000

Six foreman each working 40 hours for 5 week = + 6*5*40*15 = $18,000

Adding up all of thses to get the total cost to be capitalized = 1,590,000

If you don't understand any thing , just comment , I'll revert back with the required explanation.:)

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