Question

FeelingAlright Corporation manufactures aspirin.  Its gross receipts for the past three years have averaged just over $15...

FeelingAlright Corporation manufactures aspirin.  Its gross receipts for the past three years have averaged just over $15 million.  The corporation must capitalize costs for direct materials and direct labor and may not expense any indirect costs.

Statement is:                          CORRECT                            INCORRECT            

Why is it correct or incorrect?

Business   Accounting   
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Answer #1

Ans:

The statement is Incorrect.

Direct Material and Direct labor costs can not be capitalised as it the most basic variable costs to manufacture any product. These costs get added to the final value of finished manufacturing product and stands as a part of inventory under Current assets head of balance sheet.

Also indirect expenses are required to run business activities. Office and administrative costs are required to maintain the accounting and management work. Other costs like rent, stationery, management salary etc. are general part of business activity. So it can not be ruled out.

There above statement is Incorrect.

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