Journal article
Use of Practical Capacity in Inventory Valuation: The Wellman Experience
The Tax executive, Vol.36(1)
01 Oct 1983
Abstract
In Brush Wellman Inc. versus Commissioner, the US Tax Court ruled that a manufacturer does not have to use the anticipated sales of its products when using the ''practical capacity'' method of allocating fixed indirect production costs to its ending inventory, cost of goods sold, and idle capacity expense. According to the court, practical capacity means the ability to produce rather than sell. Therefore, the portion of fixed indirect production costs attributable to idle capacity is deductible in the taxable year incurred. In the Wellman case, the Commissioner did not disagree with Wellman's use of the practical capacity method for the 1975 taxable year. Instead, he claimed that the practical levels determined by the firm were inaccurate. Although Wellman appears to support use of the practical capacity concept, its universal adoption will not be forthcoming because: 1. A manufacturer currently using a standard costing method under the full absorption method may not benefit significantly from the practical capacity concept. 2. The practical capacity method may not meet the Commissioner's approval.
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Details
- Title
- Use of Practical Capacity in Inventory Valuation: The Wellman Experience
- Creators
- Anthony CuratolaSteven GrossmanW Webb
- Publication Details
- The Tax executive, Vol.36(1)
- Publisher
- Tax Executives Institute, Inc
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Accounting
- Identifiers
- 991020531874004721