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	16,300	12,600	26
Custodial Services	8,600	3,800	43
Maintenance	15,000	10,400	62
Printing	30,300	40,300	108	162,000	20,000
Binding	103,000	20,900	307	43,000	77,000
	173,200	88,000	546	205,000	97,000

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

Personnel	$	330,000
Custodial Services		65,900
Maintenance		93,400
Printing		419,000
Binding		161,000
Total budgeted cost	$	1,069,300

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:

	Machine-Hours	Direct Labor-Hours
Printing Department	2,500	1,100
Binding Department	800	13,500
Total hours	3,300	14,600

a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (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 (2) above.

Req 1 Req 2 Req 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 Custodial Services Maintenance Printing Binding $ 330,000 $ 65,900 $ 93,400 $ 419,000 $ 161,000 Departmental costs before allocations Allocation: Personnel (330,000) Custodial services 0 Maintenance 0 Total costs after allocations 0 65,900 93,400 419,000 161,000 Predetermined overhead rate 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 Custodial Personnel Maintenance Services Printing Binding $ 330,000 $ 65,900 $ 93,400 $ 419,000 $ 161,000 Departmental costs before allocations Allocation: Personnel (330,000) 0 0 Custodial services 0 0 0 Maintenance 0 (93,400) (65,900) 0 Total costs after allocations 0 0 419,000 161,000 Predetermined overhead rate 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