"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. Total Labor Department Hours Square Feet of Number of Space Occupied Employees Machine- Hours Direct Labor- Hours Personnel 16,400 12,700 29 Custodial Services 8,200 3,900 47 Maintenance 14,600 10,300 60 Printing 30,600 40,500 105 165,000 16,000 Binding 101,000 20,000 307 47,000 74,000 170,800 87,400 548 212,000 90,000 Budgeted overhead costs in each department for the current year are shown below: Personnel Custodial Services Maintenance Printing Binding $ 340,000 65,700 93,600 410,000 169,000 Total budgeted cost $ 1,078,300 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: Printing Department Machine-Hours 2,900 Direct Labor- Hours 1,300 Binding Department Total hours 700 13,000 3,600 14,300