Farha Co. purchases a machine for $11,500, terms 2/10, n/60, FOB shipping point.
ID: 2504329 • Letter: F
Question
Farha Co. purchases a machine for $11,500, terms 2/10, n/60, FOB shipping point. The seller prepaid the $260 freight charges, adding the amount to the invoice and bringing its total to $11,760. The machine requires special steel mounting and power connections costing $795. Another $375 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, $190 in damages occurred. Materials costing $30 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine.( Farha pays for this machine within the cash discount period)Explanation / Answer
Farha Co. purchases a machine for $11,500, terms 2/10, n/60, FOB shipping point.
The seller prepaid the $260 freight charges, adding the amount to the invoice and bringing its total to $11,760.
Since the terms were FOB shipping point the buyer is responsible for the shipping costs.
11,760
The machine requires special steel mounting and power connections costing $795.
Add 795
Another $375 is paid to assemble the machine and get it into operation.
Add 375
In moving the machine to its steel mounting, $190 in damages occurred.
Damages are not included.
Materials costing $30 are used in adjusting the machine to produce a satisfactory product.
Add 30
The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. (Farha pays for this machine within the cash discount period.)
Shipping charges are not included when calculating discount.
11,500 x 2% = $230 discount
Subtract 230
11,760 + 795 + 375 + 30 - 230 = $12,730 recorded cost of machine
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