I cant understand whats 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 dont 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:

Number of Machine- Employees Hours Labour- Hours Pied 25 Cafeteria Custodial Services. Machinery Maintenance Milling Finishing. Total Square Metres Labour- of Space Hours Occupied 16,000 12,000 9,000 3,000 15,000 10,000 30,000 40,000 100,000 20,000 T 40 60 100 300 160,000 40,000 20,000 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 $ 320,000* 65,400 93,600 416,000 166,000 Total budgeted cost $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