Stanley M. Kurzet and Anne L. Kurzet - Page 32

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            capitalized as reservoir and pond related costs.  Petitioners'                            
            revised capital costs of the reservoir and pond are based, in                             
            part, on the allocation to the capital costs of the reservoir of                          
            a portion of the direct labor costs and of the indirect or                                
            general expenses incurred each year on the timber farm and on                             
            petitioners' estimate that 40 percent of total direct labor costs                         
            incurred on the timber farm related to the reservoir and should                           
            therefore be capitalized as part of the costs thereof.  Also, in                          
            allocating general overhead costs of the timber farm to the                               
            capital costs of the water reservoir and pond, petitioners                                
            applied the above 40-percent direct-labor ratio.  Further, on the                         
            proposed revised returns, petitioners allocated to the capital                            
            costs of the reservoir 100 percent of the depreciation on the                             
            reservoir-unique equipment but no portion of the depreciation on                          
            the nonreservoir-unique equipment.                                                        
                  In allocating general overhead costs of the timber farm to                          
            the capital costs of the water reservoir and pond and in applying                         
            the above 40-percent ratio (based on petitioners' computation of                          
            the ratio of direct labor costs of the reservoir to total direct                          
            labor costs incurred on the timber farm), neither petitioner’s                            
            time and labor nor two other individuals’ time or labor, while                            
            working on the reservoir and pond were factored into the direct-                          
            labor percentage.  Petitioners did not factor into the direct-                            
            labor percentage petitioner's personal labor on the reservoir                             
            because no hard dollar cost was incurred therefor (i.e.,                                  




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