Lower Seymour Manufacturing (LSM) is building a factory'. It has signed a contract and paid a third-party construction company $25,000,000 to build the factory. LSM also paid for design changes and cost overruns totalling $1,000,000. In advance of signing the contract, LSM paid legal fees of $50,000 to oversee the process of collecting bids to construct the premises. A feasibility study costing $100,000 helped determine the design and facility needs. The president suggested that she spent about one-quarter of the past year thinking about and discussing matters related to the factory. Her annual salary' is $500,000.
During the planning stage of the factory, the company paid $200,000 for design drawings and plans for a factory that was abandoned in favour of this project. Originally on the site was a building they had planned to renovate. When they bought the site they capitalized the cost of this building. The unamortized cost of the building is $750,000. It cost $95,000 to demolish this building.
During the construction period, one of the construction workers was injured. LSM was held partly liable for the injury and had to pay' $300,000 as this was not covered by the company’s insurance policy.
Interest costs paid that were directly attributable to this project while under construction amounted to $350,000. As senior management was distracted from their normal activities, it is conservatively estimated that at least $400,000 in profits were lost.
LSM spent $40,000 advertising the opening of the factory. During construction, local citizens unexpectedly' challenged the project. The company spent $125,000 in legal fees resolving these matters. Property' taxes of $110,000 were paid on the land while under construction. After the project was completed but before occupancy, a further $35,000 in taxes was paid.
To get final permission to build the factory, LSM had to give to the city 10% of the land it had bought for the factory to be converted into a park and green space. The cost of the entire parcel of land was $10,000,000. At the time the land was given up, the entire parcel had a value of at least $15,000,000.
Required:
Determine the cost of the PPE. Briefly justify the treatment of each cost component.