Case 4B-7 Step-Down Method versus Direct Method LO4-10, LO4-111 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 ofthe jobs we bid on that require a lot of time in the Binding Department. Iwould 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 (For each service department, use the allocation base that provides the best measure of service provided, as discussed in the chapter.) Square Feet Direct Total of Space Number of Machine Labor Department Labor-Hours Occupied Employees Hours Hours Personnel 6.200 12,700 22 Custodial Services 8.600 4,000 40 Maintenance 14,500 11 62 000 102 68,000 20,000 Printing 30,000 41,000 49,000 106,000 20,800 Binding 305 78,000 98,000 175,300 89.500 53 217.000 Budgeted overhead costs in each department for the current year are shown below Personnel 310,000 Custodial Services 65.700 Maintenance 93,800 Printing 412,000 Binding 167.000 Total budgeted cost $1,048,500 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments