1)

This year Amber opened a factory to process and package landscape mulch. At the end of the year, Ambers accountant prepared the following schedule for allocating manufacturing costs to the mulch inventory, but her accountant is unsure of what costs need to be allocated to the inventory under UNICAP. Approximately 30 percent of management time, space, and expenses are spent on this manufacturing process. At the end of the year, Ambers accountant indicated that the business had processed 12,500 bags of mulch but only 3,750 bags remained in the ending inventory.

What is Ambers tax basis in her ending inventory after applying the UNICAP rules to allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to the level of ending inventory. In contrast, indirect costs are first allocated by time spent and then according to level of ending inventory.)

2)

Renee manufactured and sold a gadget, a specialized asset used by auto manufacturers that qualifies for the domestic production activities deduction. Renee incurred $26,800 in direct expenses in the project, which includes $1,600 of wages Renee paid to employees in the manufacturing of the gadget.

What is Renee's domestic production activities deduction for the gadget in each of the following alternative scenarios?

a) Renee sold the gadget for $32,700 and she reported AGI of $91,200 before considering the manufacturing deduction.

b) Renee sold the gadget for $43,200 and she reported AGI of $6,800 before considering the manufacturing deduction.

c)

Renee sold the gadget for $64,500 and she reported AGI of $66,000 before considering the manufacturing deduction.

3)

Melissa recently paid $640 for round-trip airfare to San Francisco to attend a business conference for three days. Melissa also paid the following expenses: $635 fee to register for the conference, $340 per night for three nights lodging, $290 for meals, and $510 for cab fare.

a)What amount of the travel costs can Melissa deduct as business expenses?

b)Suppose that while Melissa was on the coast, she also spent two days sightseeing the national parks in the area. To do the sightseeing, she paid $1,270 for transportation, $825 for lodging, and $340 for meals during this part of her trip, which she considers personal in nature. What amount of the travel costs can Melissa deduct as business expenses?

c)Suppose that Melissa made the trip to San Francisco primarily to visit the national parks and only attended the business conference as an incidental benefit of being present on the coast at that time. What amount of the airfare can Melissa deduct as a business expense?

d)Suppose that Melissas permanent residence and business was located in San Francisco. She attended the conference in San Francisco and paid $635 for the registration fee. She drove 196 miles over the course of three days and paid $181 for parking at the conference hotel. In addition, she spent $610 for breakfast and dinner over the three days of the conference. She bought breakfast on the way to the conference hotel and she bought dinner on her way home each night from the conference. What amount of the travel costs can Melissa deduct as business expenses?

Material Mulch and packaging$ Administrative supplies Factory labor Sales & advertising Administration 6,000 310 20,100 3,600 6,200 7,000 3,500 10,850 4,200 Salaries Property taxes: Factory Offices Depreciation: Fact Offices