Steve Manufacturing Limited (SML) purchased a large lathe. The invoice cost of the lathe was $5,500,000 but SML was able to reduce the price to $5,300,000. The seller provided terms whereby if the entire amount was paid within 30 days a further discount of 1% was available. SML paid on the 25th day. The machine was transported a long distance, costing SML $75,000. Insurance while in transit was $15,000. To encourage SML to purchase another machine the manufacturer gave the company a $50,000 discount voucher on its next purchase of a similar machine. Workers were paid $60,000 to install the machine. Start-up and testing costs were $35,000. Unfortunately, during the installation, one of the workers accidently damaged die machine and it cost $40,000 to repair the damage. Sales tax paid was $500,000. A sales tax rebate of $45,000 was received relating to this transaction. During installation, part of the plant had to be shut down; lost profit from the shutdown was $100,000.
Required:
For each expenditure identify whether it should be included in the cost of the lathe or expensed. Briefly justify each of your responses.