Sturdivant Fasteners, Co. uses a traditional allocation of overhead based on direct labor hours. 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: ?AutomotiveFastenersComputerFastenersTotal units produced5,0002,500Cost per engineering change$400$ 400Number of engineering changes525Direct labor hours per unit44Compute the cost per unit using: The traditional two-stage allocation of the costs of engineering changes based on direct labor hours.
What will be an ideal response?
($400 * 5) + ($400 * 25) = $12,000 total cost of engineering changes
(4 * 5,000) + (4 * 2,500) = 30,000 direct labor hours
$12,000/30,000 hours = $0.40 per direct labor hour
Automotive fasteners: (4 direct labor hours * $0.40/DLH) = $1.60/unit
Computer fasteners:(4 direct labor hours * $0.40/DLH) = $1.60/unit
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