I have been doing only 1040 clients for the past several years, but recently acquired a c corp which has accrual, inventory wip and section 263a costs. As I understand it, total hours are required, and admin hours are required to be divided by the production hours to arrive at a percentage to be applied against certain operating costs to arrive at a total monthly or annual inventory 263a cost. The sbqf has a worksheet to arrive at the numbers to be used. These costs are entered in the cost of sales on the 1120 return. The monthly write ups are calculated and used. The previous person that did this did not seem to calculate on a monthly basis, but was listed on the balance sheet and never increased nor decreased. Neither was an adjustment entered for costs entered as an expense. Am I wrong in expecting to see this as an expense? Any help or guidance would be greatly appreciated.
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The SBQF used the hour labor burden method, which is an acceptable method. The problem with that method is you have to keep track of labor hours between departments. Not all businesses subject to UNICAP fall into that category.
TTB, page 24-11 has a worksheet that uses an even simpler method which can be used by more taxpayers. It calculates the indirect cost ratio by dividing total indirect costs by total direct costs. All you have to do is separate indirect costs from direct costs, and you can calculate the amount of indirect costs to allocate to inventory. The worksheet even calculates the amount remaining in inventory last year that is taken into consideration for possible COGS this year. -
BeesKnees
Thank you for your response. As a result, I ordered the taxbook, which I do not have.Comment
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