"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. Department Personnel Custodial Services Maintenance Printing Binding Total Labor- Square Feet of Hours Space Occupied Number of Employees Machine- Hours Direct Labor- Hours 16,700 12,900 26 8,700 3,200 40 14,200 10,400 61 31,000 40,000 109 168,000 19,000 104,000 20,600 306 43,000 76,000 174,600 87,100 542 211,000 95,000 Budgeted overhead costs in each department for the current year are shown below: Personnel Custodial Services Maintenance $ 330,000 65,900 Printing Binding Total budgeted cost 93,700 410,000 167,000 $ 1,066,600 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 Labor- Printing Department Binding Department Total hours Machine-Hours 2,900 700 3,600 Hours 1,100 13,600 14,700 < Prev 1 of 2 Next >