Question - Mill co. , a calendar year manufacturer, which uses fifo inventory method, previously allocated production costs to inventory by use of a burden rate based on the ratios of total indirect production costs incurred during the year compared to total direct labor costs during the year. Mill co. incurred the following costs during the year:
Direct Material $500,000
Direct Labor- 1,500,000
Indirect costs inventoried under pre-1986 TRA law 1,500,000
Additional costs inventoried under Code Sec. 263A 750,000
Ending inventory prior to the capitalization of additional Code Sec. 263 A costs 700,000
Mill co. had an inventory turnover rate of five times.
Compute the total amount of additional code Sec. 263 A costs to capitalize for FIFO inventory under the simplified production method.