Accounting for Self Constructed Assets Troopers Medical

Labs In
Accounting for Self-Constructed Assets Troopers Medical Labs, Inc., began operations 5 years
ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and
hospitals. The demand for stetrics far exceeded initial expectations, and the company was
unable to produce enough stetrics to meet demand. The company was manufacturing its
product on equipment that it built at the start of its operations. To meet demand, more efficient
equipment was needed. The company decided to design and build the equipment, because the
equipment currently available on the market was unsuitable for producing stetrics. In 2010, a
section of the plant was devoted to development of the new equipment and a special staff was
hired. Within 6 months a machine developed at a cost of $714,000 increased production
dramatically and reduced labor costs substantially. Elated by the success of the new machine,
the company built three more machines of the same type at a cost of $441,000 each.(a) In
general, what costs should be capitalized for self-constructed equipment?(b) Discuss the
propriety of including in the capitalized cost of self-constructed assets:(1) The increase in
overhead caused by the self-construction of fixed assets.(2) A proportionate share of overhead
on the same basis as that applied to goods manufactured for sale.(c) Discuss the proper
accounting treatment of the $273,000 ($714,000 - $441,000) by which the cost of the first
machine exceeded the cost of the subsequent machines. This additional cost should not be
considered research and development costs.View Solution:
Accounting for Self Constructed Assets Troopers Medical Labs In
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