Sturdivant Fasteners, Co Compute the Cost Per Unit Using: the Traditional Two-Stage Allocation

question 178

Essay

Sturdivant Fasteners, Co. uses a traditional allocation of overhead based on direct labor hours system. The manager has accumulated the following information on engineering changes, which are indirect cost of their products, for two of the company's major products:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Automotive } \\\text { Fasteners }\end{array} & \begin{array} { c } \text { Computer } \\\text { Fasteners }\end{array} \\\hline \text { Total units produced } & 5,000 & 2,500 \\\hline \text { Cost per engineering change } & \$ 400 & \$ 400 \\\hline \text { Number of engineering changes } & 5 & 25 \\\hline \text { Direct labor hours per unit } & 4 & 4 \\\hline\end{array}$$ Compute the cost per unit using: The traditional two-stage allocation of the costs of engineering changes based on direct labor hours.

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Definitions:

Price Discrimination

Charging different prices to different buyers for products of like grade and quality.

Market Segments

Sub-groups of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities such as needs, wants, or interests.

Market Size

Market Size is the total volume or value of sales that a particular market reaches or is expected to reach within a specified period.

Cost-effectiveness

Evaluating the efficiency of an investment or expense based on the cost relative to the benefits or outcomes achieved.