During self-construction of an asset by Jannero Pargo Company, the following were among the costs incurred: $\begin{array} { l }
\text { Fixed overhead for the year}&\$1,000,000\
\text {Portion of $ \$ 1,000,000 $ fixed overhead that would }\
\text { be allocated to asset if it were normal production }&40,000\
\text {Variable overhead attributable to self-construction }&35,000\
\end{array}$

What amount of overhead should be included in the cost of the self-constructed asset?

Question

During self-construction of an asset by Jannero Pargo Company, the following were among the costs incurred: $\begin{array} { l  }
 \text { Fixed overhead for the year}&\$1,000,000\
 \text {Portion of $ \$ 1,000,000 $ fixed overhead that would }\
 \text { be allocated to asset if it were normal production }&40,000\
 \text {Variable overhead attributable to self-construction }&35,000\
\end{array}$

What amount of overhead should be included in the cost of the self-constructed asset?

Quizplus · Accepted Answer

The cost of the self-constructed asset should include both the variable overhead attributable to the self-construction ($35,000) and the portion of fixed overhead that would be allocated if it were normal production ($40,000), totaling $75,000.

During Self-Construction of an Asset by Jannero Pargo Company, the Following