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This is really an odd situation, said Jim Carter, general manager of Highland Publishing Company. We get most of the jobs we bid on
"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 ough
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 offering a variety of printing and binding work. The Printing and Bindinc
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 Servic
cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machinehours.
Budgeted overhead costs in each department for the current year are shown below:
Because of its simplicity, the company has always used the direct method to allocate service department costs to the two
operating departments.
Required:
Using the stepdown method, allocate the service department costs to the consuming departments. Then compute
predetermined overhead rates in the two operating departments. Use machinehours as the allocation base in the Printins
Department and direct laborhours as the allocation base in the Binding Department.
Repeat above, this time using the direct method. Again compute predetermined overhead rates in the Printing and
Binding departments.
Assume during the current year the company bids on a job requiring machine and labor time as follows:
a Calculate the overhead cost assigned to the job if the company used the overhead rates developed in above. Then
calculate the overhead cost assigned to the job if the company used the overhead rates developed in above.
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