1 Case 4B-6 (Algo) Step-Down Method versus Direct Method [LO4-10, LO4-11) 10 points "This is really an odd situation," said Jim Carter, general manager of Highland Publishing Company. "We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time in the Binding Department. I would be inclined to think that the problem is with our overhead rates, but we're already computing separate overhead rates for each department. So what else could be wrong?" eBook Print Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours. References Machine- Hours Direct Labor- Hours Department Personnel Custodial Services Maintenance Printing Binding Total Labor- Hours 16, 700 8,500 14,700 30,700 110,000 180,600 Square Feet of Space Occupied 12,200 3,500 10, 200 40, 700 20,300 86,900 Number of Employees 29 48 69 102 307 555 163,000 50,000 213,000 14,000 70,000 84,000 Budgeted overhead costs in each department for the current year are shown below: Personnel Custodial Services Maintenance Printing Binding Total budgeted cost $ 310,000 65,400 93,500 413,000 163,000 $1,044,900 1 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. 10 points Required: 1. Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor-hours as the allocation base in the Binding Department. 2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments 3. Assume that during the current year the company bids on a job that requires machine and labor time as follows: eBook Print References Printing Department Binding Department Total hours Machine-Hours 2,400 600 3,000 Direct Labor-Hours 1,000 13,500 14,500 a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above. Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req 3A Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor- hours as the allocation base in the Binding Department. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less 1 Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A 10 points eBook Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor- hours as the allocation base in the Binding Department. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less Print References Printing Binding Personnel Custodial Maintenance Services $ 310,000 $ 65,400 $ 93,500 413,000 $ 163,000 (310,000) Departmental costs before allocations Allocations: Personnel costs Custodial services costs Maintenance costs Total costs after allocations Predetermined overhead rate 0 65,400 93,500 413.000 163,000 1 Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 10 points eBook Repeat requirement 1 above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Print Show less References Personnel Custodial Maintenance Printing Binding Services $ 65,400 $ 93,500 $ 413,000 $ 163,000 $ 310,000 Departmental costs before allocations Allocations: Personnel costs Custodial services costs Maintenance costs Total costs after allocations Predetermined overhead rate 310,000 65,400 93,500 413,000 163,000 1 Binding Department Total hours buv 3,000 13,50 14,500 10 points a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above. Complete this question by entering your answers in the tabs below. eBook Print Reg 1 Reg 2 Req 3A References Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 1 above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 2. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Show less A Total Overhead Cost Step-down method Direct method