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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

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Direct, indirect and unallocated costs are provided.

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