Lockhart Enterprises recently completed its first fiscal year and developed the following income statement. M. J., the manager, cannot understand why it is showing a net loss when the number of units sold exceeded expectations. Analyze the following income statement and other information given and write a memo to M. J. explaining your findings.

Additional information:

1. The ending balances of Direct Materials Inventory, Work- in- Process Inventory, and Finished Goods Inventory were $ 200,000, $ 381,750, and $ 76,350, respectively.

2. There were no indirect materials used in production.

3. Facility- sustaining overhead consists of depreciation on factory; heat, light, and power for factory; and insurance for factory.

4. There was no over or under applied overhead at any level.

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LOCKHART ENTERPRISES Income Statement For the Year Ended Septeaber 30, 2010 $1,800,000 Sales 120,000 unizs) Less operating expenses Administrative salaries Advartising axpanse Batch-relatad overhead applied Dapreciation on offic o equigmant Dapreciation on factory Diract labor salarios Heat, light, and power for offices Heat, light, and power for factory Insurance expense for officas Insurance expense for factory Purchases of direct materials Produot-sustaining overhead applied Salos salarios Soling axponses Transportation out axponso Unit-related overhead applied $110,000 54,000 185500 34,500 108,000 200,000 20000 48,000 18,000 36,000 800,000 250,000 180 000 12,000 30,000 100,000 Total expenses Net ioss 2,186,000