2. XYZ, Inc. manufactures a tangible product and sells the product at wholesale.

Question

2. XYZ, Inc. manufactures a tangible product and sells the product at wholesale. In it's first year of operations, XYZ manufactured 1,000 units of product and incurred $200,000 of direct materials cost and $130,000 direct labor costs. For financial statement purposes, XYZ capitalized $85,000 indirect costs to inventory. For tax purposes, it had to capitalize an additional $45,000 in indirect and mixed service costs to inventory under §263A. At the end of year 1, XYZ held 260 units in inventory. Compute XYZ's cost of goods sold for book and tax purposes. (10 points)

Explanation / Answer

Units Produce 1000 Direct material Cost                                     200,000 Direct Labor Cost                                     130,000 Indirect Cost of Inveotry                                       85,000 Cost of production for 1000 Units for financial purpose                                     415,000 Add: Additional indirect Cost                                       45,000 Cost of production for 1000 Units for Tax                                     460,000 Cost of Goods sold for books (415000/1000)*(1000-260) = $307100 Cost of Goods sold for Tax purpose (460000/1000)*(1000-260) = $340400

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