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Case 48-6 (Algo) Step Down Method versus Direct Method (L04-10, L04-11) This is really an odd situation said Jim Carter, general manager of Highland Publishing

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Case 48-6 (Algo) Step Down Method versus Direct Method (L04-10, L04-11) "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?" 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 s allocated based on machine-hours Department Personnel Custodial Services Maintenance Printing Binding Total Labor- Hours 16,500 8,100 14,000 30,200 109,000 177,880 Square Feet of Direct Space Number of Machine- Labor Occupied Employees Hours Hours 12,300 30 3,400 4e 10,100 63 41,000 105 165,000 18,eee 20,600 384 43,000 73,000 87,400 542 288,000 91,000 Budgeted overhead costs in each department for the current year are shown below Personnel $ 330,000 Custodial Services 65,200 Maintenance 93,500 Printing 415,000 Binding 170,000 $ Total budgeted cost 1,073, 700 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments Required: 1. Using the step-down method, allocate the service department costs to the consuming departments. The compute predetermined overhead rates in the two operating departments. Use machine hours as the location base in the Printing Department and direct labor hours as the allocation base in the Binding Department 2. Repeat (above, this time using the direct method. Again compute predetermined overhead roles in the Printing and Binding departments 3. Assume that during the current year the company bids on a job that requires machine and tabor time as follows: Machine- Direct Hours Labor-Hours Printing Department 2,100 1,300 Binding 700 Department 13,600 Total hours 2,800 14,980 Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (above. Then determine the amount of overhead cost that would be assigned to the job the company used the overhead rates developed in (2) above. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A 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 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 Total Overhead Cost Step-down method Direct method

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