“This is really an odd situation,” said Jim Carter, generalmanager of Highland Publishing Company. “We get most of the jobs webid 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. Onthe other hand, we lose most of the jobs we bid on that require alot of time in the Binding Department. I would be inclined to thinkthat the problem is with our overhead rates, but we’re alreadycomputing separate overhead rates for each department. So what elsecould be wrong?”

Highland Publishing Company is a large organization that offersa variety of printing and binding work. The Printing and Bindingdepartments are supported by three service departments. The costsof these service departments are allocated to other departments inthe order listed below. The Personnel cost is allocated based onnumber of employees. The Custodial Services cost is allocated basedon square feet of space occupied and the Maintenance cost isallocated based on machine-hours.

Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine-Hours	Direct Labor-Hours
Personnel	16,400	12,800	20
Custodial Services	8,500	3,100	49
Maintenance	14,200	10,800	62
Printing	30,400	41,000	110	165,000	12,000
Binding	105,000	20,800	304	50,000	71,000
	174,500	88,500	545	215,000	83,000

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

Personnel	$	330,000
Custodial Services		65,400
Maintenance		93,200
Printing		413,000
Binding		169,000
Total budgeted cost	$	1,070,600

Because of its simplicity, the company has always used thedirect method to allocate service department costs to the twooperating departments.

Required:

1. Using the step-down method, allocate the service departmentcosts to the consuming departments. Then compute predeterminedoverhead rates in the two operating departments. Use machine-hoursas the allocation base in the Printing Department and directlabor-hours as the allocation base in the Binding Department.

2. Repeat (1) above, this time using the direct method. Againcompute predetermined overhead rates in the Printing and Bindingdepartments.

3. Assume that during the current year the company bids on a jobthat requires machine and labor time as follows:

	Machine-Hours	Direct Labor-Hours
Printing Department	2,200	1,200
Binding Department	500	14,000
Total hours	2,700	15,200

a. Determine the amount of overhead cost that would be assignedto the job if the company used the overhead rates developed in (1)above. Then determine the amount of overhead cost that would beassigned to the job if the company used the overhead ratesdeveloped in (2) above.