Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, thecompany purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decidedto design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was setaside to develop and produce the equipment. Additional personnel were hired for the project. The equipment wascompleted and ready for use in September.Required:1. In general, what costs should be capitalized for a self-constructed asset?2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes?3. Under what circumstance(s) would interest be included in the cost of the equipment?
Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, the
company purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decided
to design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was set
aside to develop and produce the equipment. Additional personnel were hired for the project. The equipment was
completed and ready for use in September.
Required:
1. In general, what costs should be capitalized for a self-constructed asset?
2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes?
3. Under what circumstance(s) would interest be included in the cost of the equipment?
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