Question

This year Amber purchased a factory to process and package landscape mulch. Approximately 15 percent of management time, space, and expenses are spent on this manufacturing process. At the end of the year, Amber’s accountant indicated that the business had processed 10 million bags of mulch but only 1 million bags remained in the ending inventory.

What is Amber’s tax basis in her ending inventory if the UNICAP rules are used to allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to the level of ending inventory. In contrast, indirect costs are first allocated by time spent and then according to level of ending inventory.) (Round your answers to 2 decimal places. Leave no answers blank. Enter zero if applicable.)

		Costs (in thousands)	Tax Inventory
Material:	Mulch and packaging	$8,600
	Administrative supplies	400
Salaries:	Factory labor	15,200
	Sales & advertising	6,150
	Administration	7,200
Property taxes:	Factory	5,600
	Offices	5,200
Depreciation:	Factory	10,050
	Offices	1,900
	Total		$0.00

Answer 1

Solution:

			Tax Inventory
Material	Mulch & packing	8,600	860 (8,600/1,000,000)*100,000
	Admn supplies	400	6 (400*15%)*100,000/1,000,000
Salaries	Factory labor	15,200	1,520 (15,200/1,000,000)*100,000
	Sales & advt	6,150	-
	Administration	7,200	108 (7,200*15%)*100,000/1,000,000
Property taxes	Factory	5,600	560 (5,600/1,000,000)*100,000
	Offices	5,200	78 (5,200*15%)*100,000/1,000,000
Depreciation	Factory	10,050	1,005 (10,050/1,000,000)*100,000
	Offices	1,900	28.5 (1,900*15%)*100,000/1,000,000
Total			4,165.5

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