radpit Inc. has constructed a production equipment needed for the company’s expansion program. Bradpit received a P1,500,000 bid from a reputable manufacturer for the construction of the equipment. The cost of direct material and direct labor incurred to construct the equipment were P960,000 and P660,000, respectively. It is estimated that the incremental overhead costs for construction amount to 140% of the direct labor costs. Fixed costs (excluding interest) of P2,100,000 were incurred during the construction period. This amount was allocated to construction on the basis of the total prime costs-the sum of direct labor and direct material. The prime costs incurred to construct the new equipment amounted to 35% of the total prime costs incurred for the period. The company’s policy is to capitalize all possible costs on self-construction projects. To assist in financing the construction of the production equipment, Bradpit borrowed P1.5million at the beginning of the 6-month construction period. The loan was 2 years with interest at 10%. What is the total cost of the self-constructed equipment?
Bradpit Inc. has constructed a production equipment needed for the company’s expansion program. Bradpit received a P1,500,000 bid from a reputable manufacturer for the construction of the equipment.
The cost of direct material and direct labor incurred to construct the equipment were P960,000 and P660,000, respectively. It is estimated that the incremental overhead costs for construction amount to 140% of the direct labor costs.
Fixed costs (excluding interest) of P2,100,000 were incurred during the construction period. This amount was allocated to construction on the basis of the total prime costs-the sum of direct labor and direct material. The prime costs incurred to construct the new equipment amounted to 35% of the total prime costs incurred for the period. The company’s policy is to capitalize all possible costs on self-construction projects.
To assist in financing the construction of the production equipment, Bradpit borrowed P1.5million at the beginning of the 6-month construction period. The loan was 2 years with interest at 10%.
What is the total cost of the self-constructed equipment?
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