Shantal Company is installing a new equipment and incurred the following costs:Cost of equipment per supplier’s invoice2,500,000Initial delivery and handling cost200,000Cost of site preparation600,000Consultants used for advance on the acquisition of equipment700,000Interest charged paid to supplier for deferred credit200,000Estimated dismantling cost to be incurred as required by contract300,000Operating losses before commercial production400,000What is the total cost of the equipment?
Question
Shantal Company is installing a new equipment and incurred the following costs:Cost of equipment per supplier’s invoice2,500,000Initial delivery and handling cost200,000Cost of site preparation600,000Consultants used for advance on the acquisition of equipment700,000Interest charged paid to supplier for deferred credit200,000Estimated dismantling cost to be incurred as required by contract300,000Operating losses before commercial production400,000What is the total cost of the equipment?
Solution
The total cost of the equipment can be calculated by adding up all the costs associated with the acquisition and preparation of the equipment. This includes:
- Cost of equipment per supplier’s invoice: $2,500,000
- Initial delivery and handling cost: $200,000
- Cost of site preparation: $600,000
- Consultants used for advance on the acquisition of equipment: $700,000
- Interest charged paid to supplier for deferred credit: $200,000
- Estimated dismantling cost to be incurred as required by contract: $300,000
Operating losses before commercial production are not included in the cost of the equipment as they are not a direct cost associated with the acquisition or preparation of the equipment.
So, the total cost of the equipment is 200,000 + 700,000 + 300,000 = $4,500,000.
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