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.

Required:

1a. 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.

1b. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.

1c. Assume that during the current year the company bids on a job that requires machine and labor time as follows:

Machine- Hours Direct Labor- Hours Department Personnel Custodial Services Maintenance Printing Binding Total Labor- Square Feet of Hours Space Occupied 16,400 12,300 8,100 3,600 14,400 10,900 30,500 40,100 103,000 20,200 172,400 87,100 Number of Employees 22 47 63 104 305 541 164,000 44,000 208,000 13,000 70,000 83,000 Personnel Custodial Services Maintenance Printing Binding Total budgeted cost $ 350,000 65,100 93,200 414,000 161,000 $ 1,083,300 Custodial Personnel Maintenance Services Printing Binding $ 350,000 $ 65,100 $ 93,200 $ 414,000 $ 161,000 Departmental costs before allocations Allocations: Personnel costs (350,000) Custodial services costs Maintenance costs 0 65,100 93,200 414,000 161,000 Total costs after allocations Predetermined overhead rate Printing Binding Custodial Personnel Maintenance Services $ 350,000 $ 65,100 $ 93,200 $ 414,000 $ 161,000 Departmental costs before allocations Allocations: Personnel costs Custodial services costs Maintenance costs Total costs after allocations 350,000 65,100 93,200 414,000 161,000 Predetermined overhead rate Printing Department Binding Department Total hours Machine-Hours 2,400 400 2,800 Direct Labor- Hours 1,200 13,500 14,700 Total Overhead Cost Step-down method Direct method