Olson Machine Company manufactures small and large milling machines. Selling prices of these machines range from $$35,000$ to $$200,000.$ During the $5-$month period from August $1,2019,$ through December $31,2019,$ Olson manufactured a milling machine for its own use. This machine was built as part of the regular production activities. The project required a large amount of time from planning and supervisory personnel, as well as that of some of the company's officers, because it was a more sophisticated type of machine than the regular production models.

Throughout the $5-$month period, Olson charged all costs directly associated with the construction of the machine to a special account entitled "Asset Construction Account." An analysis of the charges to this account as of December $31,2019,$ follows:

ASSET CONSTRUCTION ACCOUNT

Item Description Cost

Raw Materials

Iron castings:

Main housing, $3$ sections $$37,480$

Movable heads, $2$ heads @ $$3,9007,800$

Machine bed $4,760$

Table, $2$ sections @ $$5,50011,000$ $$61,040$

Other raw materials:

Electrical components and wiring $$28,000$

Worm screws and housing $8,600$

Cutter housings $2,700$

Conveyor system $8,400$

Other parts $2,50050,200$

Direct Labor Costs

Layout $90$ hrs$.$ @ $$5\mathrm{.}00$ $$450$

Electricians $380$ hrs$.$ @ $$9\mathrm{.}003,420$

Machining $1,100$ hrs$.$ @ $$8\mathrm{.}008,800$

Heat treatment $100$ hrs$.$ @ $$7\mathrm{.}50750$

Assembly $450$ hrs$.$ @ $$7\mathrm{.}003,150$

Testing $180$ hrs$.$ @ $$8\mathrm{.}001,44018,010$

Other Direct Charges

Repairs and maintenance during testing period $ $1,340$

Avoidable interest expense from $8/1/19$ to $12/31/194,260$

Additional labor to assist during machine testing period, $180$ hrs$.$ @ $$5\mathrm{.}009006,500$

Balance, December $31,2019$ $$135,750$

Olson allocates factory overhead to normal production as a percent of direct labor dollars as follows:

Factory Overhead Rates $($applied as a percent of direct labor dollars$)$

Departments Variable Fixed Total

Layout and electricians $50\%20\%70\%$

Machining,$*$ heat treatment, and assembly $50\%50\%100\%$

$*$All testing is conducted by employees in the machining department.

Olson uses a flat rate of $40\%$ of direct labor dollars to allocate general and administrative overhead.

During the machine testing period, a cutter head malfunctioned and did extensive damage to the machine table and one cutter housing. This damage was not anticipated and was the result of an error in the assembly operation. Although no additional raw materials were needed to make the machine operational after the accident, the following labor for rework was required:

Direct Labor Hours

Electric $80$

Machining $200$

Assembly $100$

Testing $($conducted by machining department$)20$

Olson has included all these labor charges in the Asset Construction account. In addition, it included in the account the repairs and maintenance charges of $$1,340$ that it incurred as a result of the malfunction.

Required:

Question Content Area

$1.$ Compute, consistent with GAAP and common practice, the amount that Olson should capitalize for the milling machine as of December $31,2019,$ when it declares the machine operational.

Raw materials to be capitalized: $fill in the blank $21398701705$ffaf$\_1$

Direct labor to be capitalized: fill in the blank $21398701705$ffaf$\_2$

Factory Overhead to be capitalized: fill in the blank $21398701705$ffaf$\_3$

Other costs to be capitalized: fill in the blank $21398701705$ffaf$\_4$

Total costs to be capitalized: $fill in the blank $21398701705$ffaf$\_5$

Question Content Area

$2.$ Next Level Rework costs arising from errors that ought not to have occurred should be

$.$ Variable and traceable fixed overhead costs incurred to build the asset should be capitalized because the costs

$.$