Sara Constructs a Small Storage Shed for Resale to Customers

question 84

Essay

Sara constructs a small storage shed for resale to customers and incurs the following costs:
$\begin{array}{ll}\$ 3,000 & \text { Direct labor } \\1,500 & \text { Direct materials } \\700 & \text { Other direct costs } \\300 & \text { Allocated indirect costs }\end{array}$

a.What is Sara's basis in this storage shed?
b.Sara normally sells the storage sheds for $\$ 7,000$ each. John, one of the workers who builds the storage sheds, buys one for $\$ 5,000$ . What is John's basis in his storage shed?

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Definitions:

Ricardian Advantage

A theory in economics that suggests countries should specialize in producing and exporting goods in which they have a relative productivity advantage.

Opportunity Cost

The sacrifice of gains that could have been obtained from alternative choices when one is selected.

Tractors

Farm vehicles designed for high torque at low speeds, used primarily for hauling machinery and trailers in agricultural settings.

Bicycles

Human-powered, pedal-driven vehicles with two wheels attached to a frame, used for transportation, recreation, or sport.