Self-Construction

Harshman Company constructed a building for its own use. The company incurred costs of $45,000 for materials and supplies, $64,000 for direct labor, and $6,000 for a supervisor's overtime that was caused by the construction. Harshman uses a factory overhead rate of 50% of direct labor cost. Before construction, the company had received a bid of $160,000 from an outside contractor.

Required:

1. Assuming common practice is followed, at what value should Harshman capitalize the building?

   $ fill in the blank 1

2. Next Level The cost of the constructed asset will more closely approximate the cost of an equivalent purchased asset when the

   incrementalfull-costingavoidable

   approach is used.
3. Next Level What if the bid from the outside contractor had been $133,000? At what amount should the building be recorded on the company's books? If the bid from the outside contractors was

   $100,000$133,000$139,000$70,000

   , The

   full cost approachfixed cost approachincremental cost approach

   seems more reasonable in this situation. If Harshman does use a full-cost approach and the

   $100,000$133,000$139,000$70,000

   bid is determined to be the fair value of the asset, Harshman has incurred excessive costs to construct the building.