"It's a strange situation," said Jim Carter, GM of Highland Publishing Co. "We're getting more projects this year, but our profits are very small. There may be an error in overhead calculations. But we've already used different overhead rates for each department. So, what else is wrong?

Highland Publishing is a printing company that has a production department - Printing and Binding. In addition, there are 3 support departments that allocate their costs to other departments. Here's the data:

Dept	Labor Cost	Area (m2)	Total Labor	Machine Hrs	Direct Labor Hrs
Human Resource	$20,000	4,000	10
Cust. Service	30,000	6,000	15
Maintenance	50,000	20,000	25
Printing	90,000	80,000	40	150,000	60,000
Binding	260,000	40,000	120	30,000	175,000
TOTAL	$450,000	150,000	210	180,000	235,000

Budget Overhead for each department for a year is as follows:

Human Resources	$360,000
Cust.Service	141,000
Maintenance	201,000
Printing	525,000
Binding	373,500
TOTAL	$1,600,500

The company has been using direct methods for the allocation of Overhead costs from the support department to the production department. Base for HR: Total Labor, Cust.Service: Area, Maintenance: machine hours.

Required:

1. Using the Direct method, allocate costs from the support department to the production department. After that, calculate the predetermined overhead rate of the Printing department using machine hours base, and overhead rate dept Binding using direct labor hours base.
2. Using the Step method (in the order of the Dept report), allocate costs from the support department to the production department. After that, calculate the predetermined overhead rate of the Printing department using machine hours base, and overhead rate dept Binding using direct labor hours base.
3. If in the year, the company receives a Job that requires machine hours and direct labor hours as follows:

	Machine Hrs	Direct labor Hrs
Printing Dept	15,400	900
Binding Dept	800	2,000
Total	16,200	2,900

1. Determine how much overhead will be allocated to the Job if the company uses the Direct method (no.1)
2. Determine how much overhead will be allocated to the Job if the company uses the Step method (no.2)

4. Which method is better, and explain why?