Cost of reproduction method.

• Author: Heitritter, Wilfred H.
• Position: Inventory tax accounting

According to Rev. Proc. 77-12, the cost of reproduction method is appropriate for determining the value of inventory readily replaceable in a wholesale or retail business, but generally not useful for establishing the value of the finished goods of a manufacturing concern. Other factors are relevant when inventory is valued using this method. For example, the FMV of a well-balanced inventory available to fill customer orders may exceed its reproduction cost, because it provides a continuity of business while the value of obsolete inventory may be less than its reproduction cost.

In Knapp King-Size Corp., 527 F2d 1392 (1975), the Court of Claims ruled that the FMV of a catalog business's inventory on the date of its distribution in a Sec. 334(b)(2) liquidation was its adjusted replacement cost. The court calculated the inventory's adjusted replacement cost by deducting disposition costs and an allowance for the profit a willing...