67. This year Amber opened a factory to process and package landscape mulch. At the end of the Amber's accountant prepared the following schedule for allocating manufacturing costs to the m inventory, but her accountant is unsure of what costs need to be allocated to the inventory under UNICAP. Approximately 20 percent of management time, space, and expenses are spent on this manufacturing process. LO 1-5 LO 1-5 Costs Tax Inventory Material: Mulch and packaging $5,000 Administrative supplies 250? Salaries: Factory labor 12,000? Sales & advertising 3,500 ? Administ 5,200? Property taxes: Factory 4,600? Offices 2,700 ? Depreciation: Factory 8,000? Offices 1,500 Widget Purchase Date Direct Cost Other Costs Total Cost #1 August 15 $2,100 $100 $2,200 # 2 Oc 30 2,200 150 2,350 # 3 November 10 2,300 100 2,400 a) At the end of the year, Amber's accounta indicated that the business had processed 10,000 bags of mulch but only 1,000 bags remained in ending inventory. What is Amber's tax basis in her ending inventory after applying the UNICAP ru allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to th level of ending inventory. In contrast, indirect costs are first allocated by time spent and then acco to level of ending inventory.) b) Under what conditions could Amber's business avoid having to ap UNICAP to allocate indirect costs to inventory for tax purposes?
67. This year Amber opened a factory to process and package landscape mulch. At the end of the Amber's accountant prepared the following schedule for allocating manufacturing costs to the m inventory, but her accountant is unsure of what costs need to be allocated to the inventory under UNICAP. Approximately 20 percent of management time, space, and expenses are spent on this manufacturing process. LO 1-5 LO 1-5 Costs Tax Inventory Material: Mulch and packaging $5,000 Administrative supplies 250? Salaries: Factory labor 12,000? Sales & advertising 3,500 ? Administ 5,200? Property taxes: Factory 4,600? Offices 2,700 ? Depreciation: Factory 8,000? Offices 1,500 Widget Purchase Date Direct Cost Other Costs Total Cost #1 August 15 $2,100 $100 $2,200 # 2 Oc 30 2,200 150 2,350 # 3 November 10 2,300 100 2,400 a) At the end of the year, Amber's accounta indicated that the business had processed 10,000 bags of mulch but only 1,000 bags remained in ending inventory. What is Amber's tax basis in her ending inventory after applying the UNICAP ru allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to th level of ending inventory. In contrast, indirect costs are first allocated by time spent and then acco to level of ending inventory.) b) Under what conditions could Amber's business avoid having to ap UNICAP to allocate indirect costs to inventory for tax purposes?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:67. This year Amber opened a factory to process and package landscape mulch. At the end of the year,
Amber's accountant prepared the following schedule for allocating manufacturing costs to the mulch
inventory, but her accountant is unsure of what costs need to be allocated to the inventory under
UNICAP. Approximately 20 percent of management time, space, and expenses are spent on this
manufacturing process. LO 1-5 LO 1-5 Costs Tax Inventory Material: Mulch and packaging $ 5,000?
Administrative supplies 250? Salaries: Factory labor 12,000? Sales & advertising 3,500 ? Administration
5,200 ? Property taxes: Factory 4,600? Offices 2,700? Depreciation: Factory 8,000? Offices 1,500 ?
Widget Purchase Date Direct Cost Other Costs Total Cost #1 August 15 $2,100 $100 $2,200 # 2 October
30 2,200 150 2,350 #3 November 10 2,300 100 2,400 a) At the end of the year, Amber's accountant
indicated that the business had processed 10,000 bags of mulch but only 1,000 bags remained in the
ending inventory. What is Amber's tax basis in her ending inventory after applying the UNICAP rules 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.) b) Under what conditions could Amber's business avoid having to apply
UNICAP to allocate indirect costs to inventory for tax purposes?
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