brodhead manufacturing company has constructed its own special e 252056

Brodhead Manufacturing Company has constructed its own special equipment to produce a newly developed product. A bid to construct the equipment by an outside company was received for $1,200,000. The actual costs incurred by Brodhead to construct the equipment were as follows:

Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $320,000

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000

It is estimated that incremental overhead costs for construction amount to 140% of direct labor costs. In addition, fixed costs (exclusive of interest) of $700,000 were incurred during the construction period and allocated to production on the basis of total prime costs (direct labor plus direct material). The prime costs incurred to build the new equipment amounted to 35% of the total prime costs incurred for the period. The company follows the policy of capitalizing all possible costs on self-construction projects. To assist in financing the construction of the equipment, a $500,000, 10% loan was acquired at the beginning of the 6-month construction period. The company carries no other debt except for trade accounts payable. For simplicity, assume that all construction expenditures took place exactly midway through the project: That is, all expenditures took place with three months remaining in the construction period. Compute the cost to be assigned to the new equipment.

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