n Olson Machine Company manufactures small and large milling machines. Selling p
ID: 2574119 • Letter: N
Question
n Olson Machine Company manufactures small and large milling machines. Selling prices of pio-z Self-Constructio LO 10.4 these machines range from S35,000 to $200,000. During the 5-month period from August 1, 2016, through CMA December 31, 2016, Olson manufactured a milling machine for its own use. This machine was built as part datd regular production activities. The project required a large amount of time from planning and supervisory pers as well as that of some of the company's officers, because it was a more sophisticated type of machine than the regular production models. Throughour the Simhoth period, Olion dharget all ots dredy asocatcd with the cons son c machine to a special account entitled "Asset Construction Account." An analysis of the charges to this account as of December 31, 2016, follows:Explanation / Answer
Solution:
1) Calculation of the Amount that Olson Should Capitalize for the Milling Machine as of December 31, 2016, when it Declares the Machine Operational:
2) Determining the Alternative Procedures in Each Case:
Alternative Procedures are in two Possible Costs, the First one is Rework Costs like Direct Labor, Repairs and Maintanence and Factory Overhead and the Second one is Facotry Overhead Costs:
Raw Materials Iron Castings $61,040 Other Raw Materials $50,200 $111,240 Direct Labor Layout (90 * $5.00) $450 Electricians [(380 - 80) * $9.00] $2,700 Machinery [(1,100 - 200) * $8.00] $7,200 Heat treatment (100 * $7.50) $750 Assembly [(450 - 100) * $7.00] $2,450 Testing [(180 - 20) * $8.00] $1,280 Additional testing labor [(180 - 20) * $5.00) $800 $15,630 Factory Overhead Layout and electricians ($3,150 * 0.70) $2,205 Machining, heat treatment, assembly, testing ($12,480 * 1.00) $12,480 $14,685 Interest Paid $4,260 Total amount to be capitalized $145,815Related Questions
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