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.

---

Definitions:

MACRS

Modified Accelerated Cost Recovery System; a method of depreciation for tax purposes in the United States.

Depreciated

A decrease in the value of an asset over time due to wear and tear, obsolescence, or market conditions, often used for tax purposes.

Cash Inflow

The total amount of money being transferred into a business, from operations, financing or investing activities, over a specific period of time.

Cash Flows

The cumulative sum of funds moving into and exiting a company, notably influencing its liquidity.