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

Answer options:

Selling and marketing expenses.

Off-site storage and warehousing costs.

Research and experimental expenditures.

General management policy salaries.

How to approach this question

UNICAP requires capitalizing Direct Materials, Direct Labor, and Overhead (Factory). Selling, General Admin, and R&D are usually period costs. Warehousing is part of the factory/holding process.

Full Answer

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

UNICAP requires capitalization of direct costs and an allocable portion of indirect costs (overhead). Off-site storage and warehousing are indirect costs allocable to production/resale activities and must be capitalized. Selling/Marketing are period costs.

Common mistakes

Thinking warehousing is a selling expense.

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