"I can't understand what's happening here," said Mike Holt, president of Severson Products Inc. "We always seem to bid too high on jobs that require a lot of labour time in the Finishing Department, and we always seem to get every job we bid on that requires a lot of machine time in the Milling Department. Yet we don't seem to be making much money on those Milling Department jobs. I wonder if the problem is in our overhead rates." Severson Products manufactures high-quality wood products to customers' specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand-finishing work in the Finishing Department. In addition to the Milling and Finishing Departments, the company has 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 most appropriate allocation base: Total Labour Square Metres of Hours Space Occupied Number of Employees Machine- Hours Labour- Hours Cafeteria 16,000 12,000 25 Custodial Services 9,000 3,000 40 Machinery Maintenance 15,000 10,000 60 Milling 30,000 40,000 100 160,000 20,000 Finishing 100,000 20,000 300 40,000 70,000 170,000 85,000 525 200,000 90,000 Budgeted overhead costs in each department for the current year are as follows: Cafeteria Custodial Services Machinery Maintenance Milling Finishing Total budgeted cost $ 320,000+ 65,400 93,600 416,000 166,000 $1,061,000 "This represents the amount of cost subsidized by the company. The company has always allocated service department costs to the operating departments (Milling and Finishing) using the direct method of allocation, because of its simplicity. Required: 1. Allocate service department costs to operating departments by the step-down method. Then compute predetermined overhead rates in the operating departments for the current year, using machine-hours as the allocation base in the Milling Department and direct labour-hours as the allocation base in the Finishing Department. (Round "Predetermined overhead rate answers to 2 decimal places. Negative amounts should be indicated by a minus sign.) Total costs before allocations Allocations: Cafeteria Custodial Services Machinery Maintenance Total overhead after allocations Cafeteria Custodial Services Machinery Maintenance Milling Finishing Milling predetermined overhead rate Finishing predetermined overhead rate per machine hr per DLH Help Save & Ex 2. Repeat (requirement 1) above, this time using the direct method. Again compute predetermined overhead rates in the Milling and Finishing departments. (Round "Predetermined overhead rate" answers to 2 decimal places. Negative amounts should be indicated by a minus sign.) Total costs before allocations Allocations: Cafeteria Custodial Services Machinery Maintenance Total overhead after allocations Divide by machine-hours Divide by direct labour-hours Predetermined overhead rate Cafeteria Custodial Machinery Services Maintenance Milling Finishing 3. Assume that during the current year the company bids on a job that requires machine and labour time as follows Milling Department Finishing Department Total hours Machine-Hours 2,000 800 2,800 Direct Labour-Hours 1,600 13,000 14,600 3. Assume that during the current year the company bids on a job that requires machine and labour time as follows: Milling Department Finishing Department Total hours Machine-Hours: 2,000 800 2,800 Direct Labour-Hours 1,600 13,000 14,600 3-a. Determine the amount of overhead 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 that would be assigned to the job if the company used the overhead rates developed in (requirement 2) above. (Round the predetermined overhead rates to 2 decimal places.) Step-down method: Miling Department: Finishing Department Total overhead cost Direct method: Milling Department Finishing Department Total overhead cost 3-b. This part of the question is not part of your Connect assignment.