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 were 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.

Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine-Hours	Direct Labor-Hours
Personnel	16,700	12,100	26
Custodial Services	8,200	3,500	42
Maintenance	14,500	10,500	62
Printing	30,600	40,400	102	161,000	11,000
Binding	106,000	20,300	307	45,000	73,000
	176,000	86,800	539	206,000	84,000

Budgeted overhead costs in each department for the current year are shown below:

Personnel	$	340,000
Custodial Services		65,500
Maintenance		93,700
Printing		410,000
Binding		165,000
Total budgeted cost	$	1,074,200

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.

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. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less A Personnel Custodial Services Maintenance Printing Binding Departmental costs before allocations $ 340,000 $ 65,500 $ 93,700 $ 410,000 $ 165,000 Allocations: Personnel costs (340,000) 27,846 203,456 Custodial services costs (93,346) 41,106 X 13,769 X (148,575) X 26,613 67,592 X 52,965 116,126 646,683 Maintenance costs 32,449 427,518 Total costs after allocations 0 0 0 Predetermined overhead rate $ 4.02 $ 5.86 Repeat requirement 1 above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places and rest of the answers to the nearest whole dollar amount.) Show less A: Personnel Maintenance Printing Binding Custodial Services $ 65,500 Departmental costs before allocations $ 340,000 $ 93,700 $ 410,000 $ 165,000 Allocations: Personnel costs (340,000) Custodial services costs (65,500) 84,726 X 43,597 X 73,236 611,559 255,204 X 21,903 X 20,464 X 462,571 Maintenance costs (93,700) Total costs after allocations 0 0 0 Predetermined overhead rate $ 3.80 6.34