"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 of the jobs we bid on that require a lot of time in the Binding Department. I would 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. 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 Number of Employees Machine - Hours Direct Labor-Hours 24 49 Department Personnel Custodial Services Maintenance Printing Binding Total Labor Square Feet of Hours Space Occupied 16,400 12,080 8,300 3,700 14,500 10, 800 30,800 41,000 103,000 20,400 173,000 87.900 65 101 308 547 165,000 41,000 206,000 14,000 75,000 89,000 Budgeted overhead costs in each department for the current year are shown below Personnel del Can $ 320,000 200 Personnel $ 320,000 Custodial Services 65,300 Maintenance 94,000 Printing 415,000 Binding 167,690 Total budgeted cost $1,061,300 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Required: 1. 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. 2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments 3. Assume that during the current year the company bids on a job that requires machine and labor time as follows: Direct Machine - Hours Labor-Hours Printing 2,000 1,100 Department Binding Department 500 13,500 Total hours 2.500 14,600