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.
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Number of Employees Machine- Hours Direct Labor- Hours 29 43 Department Personnel Custodial Services Maintenance Printing Binding Total Labor-Square Feet of Hours Space Occupied 16,700 12,500 8,100 3,100 14,300 10,900 30,700 40,100 104,000 20,100 173,800 86,700 66 103 304 545 167,000 42,000 209,000 15,000 78,000 93,000 Budgeted overhead costs in each department for the current year are shown below: Personnel Custodial Services Maintenance Printing Binding Total budgeted cost $ 300,000 65,500 93,200 417,000 166,000 $ 1,041,700 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A 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 Personnel $ 300,000 Custodial Services $ 65,500 Maintenance $ 93,200 Printing $ 417,000 Binding 166,000 $ (300,000) Departmental costs before allocations Allocation: Personnel Custodial services Maintenance Total costs after allocations Predetermined overhead rate 0 65,500 93,200 417,000 166,000 Reqi Req2 > Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A 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 Personnel Dorel $ 300,000 Custodial Services $ 65,500 Maintenance $ 93,200 Printing $ 417,000 Binding $ 166,000 Departmental costs before allocations Allocation: Personnel Custodial services Maintenance Total costs after allocations Predetermined overhead rate 300,000 65,500 93,200 417,000 166,000 Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 1 above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 2 above. (Do not round intermediate calculations. Round "Predetermined overhead rates" to 2 decimal places and other final answers to the nearest whole dollar amount.) Show less Total Overhead Cost Step-down method Direct method Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A 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 Personnel Dorel $ 300,000 Custodial Services $ 65,500 Maintenance $ 93,200 Printing $ 417,000 Binding $ 166,000 Departmental costs before allocations Allocation: Personnel Custodial services Maintenance Total costs after allocations Predetermined overhead rate 300,000 65,500 93,200 417,000 166,000 Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req 3A Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 1 above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in requirement 2 above. (Do not round intermediate calculations. Round "Predetermined overhead rates" to 2 decimal places and other final answers to the nearest whole dollar amount.) Show less Total Overhead Cost Step-down method Direct method
