Question

To automate one of its production​ processes, the Milwaukee Corporation bought four flexible manufacturing cells at a price of ​$360,000 each. When they were​ delivered, Milwaukee paid freight charges of ​$19,000 and handling fees of ​$17,000. Site preparation for these cells cost ​$48,000. Seven ​foremen, each earning ​$26 an​ hour, 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 ​$3,700. Determine the cost basis​ (amount to be​ capitalized) for these cells.

The cost basis for these cells is ​$_____. ​(Round to the nearest​ dollar.)

Answer 1

Cost price of four cells = 4*360,000 = $1,440,000

Handling fees, freight charges site preparation charges and wiring and other materials cost = 17,000 + 19,000 + 48,000 + $3,700= $ 87,700

Wages of one foreman = wage per hour * weeks worked * hours per week = 26*5*40 = $5200

Wages of 7 foremen = 7*5200 = $36,400

Cost basis includes the purchase price and any associated purchase costs.

Hence the calculation of cost basis for the three cells requires summing up the above all costs.

Cost basis for these cells = $1,440,000 + $ 87,700 + $36,400 = $ 1,564,100