During the current year, Polly Company purchased a second hand machine at a price of P5,000,000. A cash payment of P1,000,000 was made and a two-year, non-interest bearing note was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has a second hand market value of P3,800,000. A new machine would cost P6,500,000. The following costs were incurred during the year: Cost of removing old machine that is replaced Cash proceeds from the sale of the old machine replaced General overhaul and repairs to recondition machine prior to use Cost of spare parts to cover breakdowns Cost of installation Cost of testing machine prior to use Cost of hauling the machine from vendor to company premises Cost of repairing damage to machine caused when the machine was dropped during installation Repairs incurred during the first year of operation Safety device added to the machine Cost of training workers to operate the machine 320,000.00 70,000.00 195,000.00 64,000.00 155,000.00 134,000.00 28,000.00 25,000.00 148,000.00 289,000.00 14,000.00

During the current year, Polly Company purchased a second hand machine at a price of P5,000,000. A cash payment of P1,000,000 was made and a two-year, non-interest bearing note was issued for the balance of P4,000,000. Recent transactions involving similar machine indicate that the used machine has a second hand market value of P3,800,000. A new machine would cost P6,500,000. The following costs were incurred during the year: Cost of removing old machine that is replaced Cash proceeds from the sale of the old machine replaced General overhaul and repairs to recondition machine prior to use Cost of spare parts to cover breakdowns Cost of installation Cost of testing machine prior to use Cost of hauling the machine from vendor to company premises Cost of repairing damage to machine caused when the machine was dropped during installation Repairs incurred during the first year of operation Safety device added to the machine Cost of training workers to operate the machine 320,000.00 70,000.00 195,000.00 64,000.00 155,000.00 134,000.00 28,000.00 25,000.00 148,000.00 289,000.00 14,000.00

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 6CE

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