Mercier Lumber Co. spent $1.2 million in research and development costs to devis
ID: 2639459 • Letter: M
Question
Mercier Lumber Co. spent $1.2 million in research and development costs to devise a new cutting machine. The firm now wants to build a new building to house the new machine and expand its operations. The building will cost $670,000 and the machine can be built for $348,000. The building will be placed on land which the firm acquired nine years ago at a cost of $139,000. The land is currently valued at $155,000. What initial cost should the firm use to analyze this expansion project?
A.$1,018,000
B.$1,173,000
C.$1,157,000
D.$2,373,000
E.$2,218,000
A.$1,018,000
B.$1,173,000
C.$1,157,000
D.$2,373,000
E.$2,218,000
Explanation / Answer
Initial cost = Cost of building + Machine builting costs + Cost of land
Initial cost = $670,000 + $348,000 + $139,000 = $1,157,000
Therefore, Option (c) $1,157,000 is the correct answer.