Casa Corp. needed a warehouse and maintenance facility on its company site, which already housed three manufacturing/storage
Question:
Casa Corp. needed a warehouse and maintenance facility on its company site, which already housed three manufacturing/storage facilities and the company head office. The lowest outside bid for the facility was $3,200,000. Casa believed that it could successfully construct the facility and have more control over the construction process. Accordingly, it began construction on company owned land in 20X5. The facility was completed in 20X6. Costs related to the project have been accumulated in one account, “manufacturing facility
Materials ........................................................................................................................... $1,066,200
Subcontracted work (primarily electrical and plumbing) .............................................. 345,900
Direct labour; idle plant workers assigned to construction tasks ................................. 455,800
Direct labour; construction workers hired specifically for this project ............................ 123,600
Plant foreman used for construction supervision; salary and benefits .......................... 34,900
Direct labour; plant maintenance workers assigned to construction tasks ....................... 53,200
Engineering and architectural services .................................................................................. 216,700
Additional information:
a. Overhead is assigned in the plant to cover supplies used, electricity, occupation costs, maintenance, and so on in the production environment at a rate of $0.57 for every dollar of direct plant labour. This is reasonable for the warehouse project.
b. A loan was negotiated to cover the cash flow needed for construction. Interest of $75,900 was paid on this loan.
c. The administrative office handled the planning and paperwork related to the construction. The staff worked full time on this for approximately six months, representing salary and benefit costs of $57,000.
d. The executive team (chief executive officer and chief financial officer of the company, primarily) devoted approximately 10% of their time to this project during construction. The compensation package for these two individuals was $320,000 for this period.
Required:
1. Prepare a schedule showing the costs that can be capitalized for the building. If any items are not capitalized, explain why not.
2. What, if anything, would change in your answer if the outside bid on this project had been $2,400,000? Explain.
3. Under what circumstances must loan interest be capitalized as part of the cost of self constructed assets? Explain.
Step by Step Answer:
Intermediate Accounting Volume 1
ISBN: 9781260306743
7th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod Dick