Troy Tools manufactures over one hundred different hand tools used by mechanics, carpenters, and…

Troy Tools manufactures over one hundred different hand tools used by mechanics, carpenters, and plumbers. Troy's cost account ing system has always been very simple. The costs allocated to inventory have included only materials, direct labor, and factory overhead . Other overhead costs such as costs of the personnel department, purchasing, payro ll, and computer services have never been created as manufacturing overhead even though many of the activities of the departments relate to the manufacturing operations . You are preparing Troy's tax retur n for the first rime and determine that the compa ny is not following the uniform cap italization rules prescribed in the tax law. You have explained to the company's president that there is a prob lem, and she is reluctant ro change accounting methods . She says allocating these costs to the many products the company makes will be a time-consuming and expensive process. She feels chat the cost of determin – ing the additional amounts to include in inventory under the uniform capita lization rules will probab ly be more than the additiona l tax that the company will pay. What is the appropriate way ro handle this situation? (See the Statements on Standards for Tax Services section in Chapter I:15 for a discussion of these issues.)

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