When a Company Purchases Land with a Building on It

question 18

Multiple Choice

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant, the cost incurred to tear down the building should be

• A) Expensed as incurred
• B) Added to the cost of the plant
• C) Added to the cost of the land
• D) Amortized over the estimated time period between the tearing down of the building and the completion of the plant

---

Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or providing a service.

Production Orders

Instructions or commands to start the manufacture of a certain quantity of a product within a specified timeframe.

Activity Rate

The rate determining the cost allocation in activity-based costing, which distributes overhead expenses to products or services according to particular activities.

Activity-Based Costing

A pricing approach that determines and allocates the expenses of each activity within an organization to all products and services based on their actual usage.