Self-Construction

Harshman Company constructed a building for its own use. The company incurred costs of $40,000 for materials and supplies, $64,000 for direct labor, and $5,000 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 $154,000 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 approach is used.
3. Next Level What if the bid from the outside contractor had been $127,000? At what amount should the building be recorded on the company's books? If the bid from the outside contractors was , The seems more reasonable in this situation. If Harshman does use a full-cost approach and the bid is determined to be the fair value of the asset, Harshman has incurred excessive costs to construct the building.