Self-Construction
Response to the following problem:
The Harshman Company constructed a building for its own use. The company incurred costs of $20,000 for materials and supplies, $48,000 for direct labor, and $4,000 for a supervisor's overtime that was caused by the construction. The company uses a factory overhead rate of 50% of direct labor cost. Before construction, the company had received a bid of $100,000 from an outside contractor.
Required
1. At what value should the company capitalize the building? Justify your answer.
2. Would your answer change if the bid from the outside contractor had been $80,000? $60,000?