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 offering 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	16,800	12,000	30
Custodial Services	8,500	3,200	42
Maintenance	14,900	10,700	69
Printing	30,900	40,400	102	164,000	19,000
Binding	107,000	20,900	306	41,000	72,000
	178,100	87,200	549	205,000	91,000

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

Personnel	$ 300,000
Custodial Services	65,500
Maintenance	93,500
Printing	418,000
Binding	166,000
Total budgeted cost	$ 1,043,000

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 during the current year the company bids on a job requiring machine and labor time as follows:

	Machine-Hours	Direct Labor-Hours
Printing Department	2,800	1,000
Binding Department	500	13,500
Total hours	3,300	14,500

a. Calculate the overhead cost assigned to the job if the company used the overhead rates developed in (1) above. Then calculate the overhead cost assigned to the job if the company used the overhead rates developed in (2) above.