This year Amber opened a factory to process and package landscape mulch. At the end of...

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Finance

This year Amber opened a factory to process and packagelandscape mulch. At the end of the year, Amber’s accountantprepared the following schedule for allocating manufacturing coststo the mulch inventory, but her accountant is unsure of what costsneed to be allocated to the inventory under UNICAP rules.Approximately 20 percent of management time, space, and expensesare spent on this manufacturing process. At the end of the year,Amber’s accountant indicated that the business had processed 10,600bags of mulch but only 2,120 bags remained in the endinginventory.
What is Amber’s tax basis in her ending inventory after applyingthe UNICAP rules to allocate indirect costs to inventory? (Assumedirect costs are allocated to inventory according to the level ofending inventory. In contrast, indirect costs are first allocatedby time spent and then according to level of ending inventory.
Costs Tax Inventory
Material: Mulch and packaging $8,200
Administrative supplies 650
Salaries: Factory labor 12,700
Sales & advertising 5,150
Administration 5,950
Property taxes: Factory 9,000
Offices 5,000
Depreciation: Factory 12,200
Offices 3,800
Total $0.00

Answer & Explanation Solved by verified expert

4.2 Ratings (770 Votes)

Total bags processed = 10600 Bags

Total inventory = 2120 Bags

% of ending inventory = 2120 / 10600 = 20%

% of management times spend = 20%

Direct cost allocated as per the % of ending inventory

Direct cost = Material, Taxes, Labor and Depreciation.

Indirect cost allocated as firstly on the basis of time spend and then as per the ending inventory.

Indirect cost = Administration and office cost

Sales and advertisement is not required to allocate on the inventory.

Particular		Cost	Tax Inventory
Material	Mulch and packaging	$8,200.00	$1,640.00
	Administration supplies	$650.00	$26.00
Salaries	Factory Labor	$12,700.00	$2,540.00
	Sales and Advertising	$5,150.00	$0.00
	Administration	$5,950.00	$238.00
Property Taxes	Factory	$9,000.00	$1,800.00
	Office	$5,000.00	$200.00
Depreciation	Factory	$12,200.00	$2,440.00
	Office	$3,800.00	$152.00
	Total		$9,036.00

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Transcribed Image Text

This year Amber opened a factory to process and packagelandscape mulch. At the end of the year, Amber’s accountantprepared the following schedule for allocating manufacturing coststo the mulch inventory, but her accountant is unsure of what costsneed to be allocated to the inventory under UNICAP rules.Approximately 20 percent of management time, space, and expensesare spent on this manufacturing process. At the end of the year,Amber’s accountant indicated that the business had processed 10,600bags of mulch but only 2,120 bags remained in the endinginventory.What is Amber’s tax basis in her ending inventory after applyingthe UNICAP rules to allocate indirect costs to inventory? (Assumedirect costs are allocated to inventory according to the level ofending inventory. In contrast, indirect costs are first allocatedby time spent and then according to level of ending inventory.CostsTax InventoryMaterial:Mulch and packaging$8,200Administrative supplies650Salaries:Factory labor12,700Sales & advertising5,150Administration5,950Property taxes:Factory9,000Offices5,000Depreciation:Factory12,200Offices3,800Total$0.00