Under the Uniform Capitalization Rules (UNICAP) of IRC §263A, which of the following costs must be capitalized into inventory?

Answer options:

Marketing and selling expenses.

Research and development.

General management salaries.

Off-site storage and warehousing costs.

How to approach this question

UNICAP requires capitalizing Direct Materials, Direct Labor, and Overhead (Factory). Warehousing is part of the 'Factory/Production' process. Selling/Marketing/R&D are 'Period' costs.

Full Answer

D.Off-site storage and warehousing costs.✓ Correct

IRC §263A requires capitalization of direct costs and an allocable share of indirect costs (overhead) associated with production or resale. This includes off-site storage, warehousing, purchasing, handling, and processing costs. Selling, advertising, and general management are period costs.

Common mistakes

Thinking storage is a selling expense.

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