PROBLEM - LaGrange Company uses two producing departments (A and B) and two service departments (S1 and S2). The costs incurred in S1 and S2 are allocated to departments A and B and included in their factory overhead rates for costing products. S1 costs are allocated based on the number of employees, S2 costs are allocated based on direct labor hours, and the production departmental overhead rates are also based on direct labor hours. The following data are available for a recent period:
S1 S2 A B
Direct departmental costs $48,000 $72,000 $280,000 $470,000
Number of employees 4 6 24 36
Direct labor hours 900 650 4,500 3,600
A. Prepare a schedule allocating the service department costs to the producing departments using the step allocation method. Include calculations supporting your choice of which costs to allocate first.
B. Determine the overhead rate for
1. Department A
2. Department B