Lopez Plastics Company makes just two product lines, plastic casings for pens and plastic casings for cell phones. Pen casings have a simple design and a simple production process. The company produces them in high volumes, using 90% of its direct-labor time. Pen casings rarely require special customer support or engineering work. This means that indirect production-support costs, such as design engineering of the pen casings, will be small. Cell phone casings, in contrast, have a more complex design, and the company produces them in small volumes, accounting for only 10% of its direct labor time. Customers who buy cell phone casings have specific design requirements that cause much production engineering work. Most of the engineering work performed at Lopez Plastics supports the production of cell phones. (Click the icon to view the process map and data.) Requirement 1 Use the letters D, 1, and U to indicate how the cost of each resource cost would be classified; D = direct, / = indirect, and U = unallocated. Item D, I or U? 1. Depreciation of the plant 2. Resin used to make pen casings 3. Salary of plant manager 4. Salaries of cost accountants 5. Depreciation on computers used by engineers to design cell phone casings 6. Salaries of engineers 7. Salaries of operating labor processing pen casings 8. Travel costs of purchasing agent while investigating potential new suppliers of resin The process map depicts a two-stage ABC system, which uses two stages of allocation to get from the original indirect resource cost to the final product or service cost. (At this point, Lopez Plastics uses the ABC system only for production costs, so the $100,000 of non-production value-chain costs remains unallocated.) The first stage allocates indirect resource costs to activity-cost pools, in this case two activities, processing activity and production support activity. The second stage allocates activity costs to the products or services. In essence, the cost objects in the first stage are the activities, and the cost objects in the second stage are the products. Lopez Plastics has only two indirect resources, (1) plant and machinery and (2) engineers and CAD equipment, and only two activities, (1) processing and (2) production support Plant and Machinery $180,000 Engineers and CAD Equipment Resource $40,000 All Unallocated Value Chain Costs $100,000 20% 80% 75% 25% Processing Activity $135,000 8,000 Production Support Activity $45,000 32.000 75% 25% Processing Activity $135,000 8,000 143,000 Production Support Activity $45,000 32,000 $77,000 Cost Allocation Base Cost Allocation Base [Direct Labor Hours) Distinct Parts Direct Materials for Pen Casings $22,500 Direct Labor for Pen Casings $135,000 Direct Materials for Cell Phone Casings $12,000 Direct Labor for Cell Phone Casings $15,000 Unallocated $100,000 Sales $360,000 Sales $80,000