Step Method of Allocation for Product Costing Sample Company had the following departmental factory overhead costs for a normal month (numbers reduced for simplicity):

Machining $17,100 Factory administration $7,800 Buildings and grounds 5,100 Assembly 3,700 Finishing 3,400 Repair and maintenance 2,460 The step method was used for allocating service-department costs to production departments. Repair costs were allocated first, based on specific services rendered, 20 percent to Buildings and Grounds, | percent to Factory Administration, 60 percent to Machining, 10 percent to Assembly, and 9 percent to Finishing.

Building and grounds costs were allocated next, based on square footage in each department. Factory administration was allocated last, based on direct-labor hours:

FACTORY ADMINISTRATION = MACHINING ASSEMBLY — FINISHING Square footage 10,000 60,000 20,000 10,000 Standard directlabor hours 24,000 3,000 3,000 7. Compute the total factory overhead for each production department.

2. Compute the overhead rate per standard direct-labor hour for absorption product-costing purposes. lp25