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    Direct, Indirect, and Unallocated Costs

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    Lockyear window company makes and sells three product lines- custom detailed windows, large
    standard windows, and small standard windows. The statement of operating income for the most
    recent period is shown here:

    Lockyear window company
    Statement of operating income Total
    Sales $155,000
    Cost of goods sold
    Direct material $40,000
    Indirect production costs 41,000 81,000
    Gross profit 74,000
    Selling and administrative expense
    Commissions 15,000
    distrubution to warehouse 10,400 25,400
    income before unallocated expenses 48,600
    unallocated expenses
    Administrative salaries 8,000
    other administrative expenses 4,000 12,000
    operating income before taxes
    $36,600

    1. Lockyear uses a traditional cost accounting system. To aid in the companys analysis of its product mix strategy, you have been
    asked to determine operating income (loss) for each product line.

    Process map for Lockyear window company

    Indirect Distrubtion Administrative $8,000
    production costs Salaries
    costs $10,400
    $41,000 Other 4,000
    Machine hours Kilograms Administrative costs
    |

    Material Commissions Material commissions Material Commissions
    $5,000 $1,500 $15,000 $3,500 $20,000 $10,000

    Custom detailed Large Standard Small standard Unallocated
    1400 machine hours 250 machine hors 400 machine hours costs
    25000 kilograms 75,000 kilograms 160,000 kilograms $12,000
    1000 windows sold at 5,000 windows sold at 20,000 windows sold at
    $30/unit $9/unit $4/unit

    © BrainMass Inc. brainmass.com June 4, 2020, 4:06 am ad1c9bdddf
    https://brainmass.com/business/accounting/direct-indirect-unallocated-costs-548511

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    Solution Summary

    Direct, indirect and unallocated costs are provided.

    $2.19

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