LaGrange Company

PROBLEM #2
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:
Direct departmental costs
Number of employees
Direct labor hours

S1
$48,000
4
900

S2
$72,000
6
650

A
$280,000
24
4,500

B
$470,000
36
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