Case 48-6 (Algo) Step-Down Method versus Direct Method (L04-10, LO4-11) 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 Machine-Hours Direct Labor Hours Department Personnel Custodial Services Maintenance Printing Binding Total Labor Square Feet of Hours Space Occupied 16,200 12,900 8,800 3,699 14,100 10,400 30,700 40,700 100,000 20.600 169,800 87,600 Number of Employees 29 50 68 110 310 567 164,000 43,000 207.000 15,000 75, eee 90,000 Budgeted overhead costs in each department for the current year are shown below Personnel Custodial Services Maintenance Printing Binding Total budgeted cost $ 300,000 65,900 93,700 415,000 170.000 $1,044,600 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 Binding Department Total hours Machine Hours 3,000 500 35.00 Direct Labor Hours 1,500 13,700 15,20 a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rotes 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 Complete this question by entering your answers in the tabs below. Reg 1 Reqz Reg 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 found intermediate calculations. Round "Predetermined overhead rate" to 2 decimal places rest of the answers to the nearest whole dollar amount.) Show less Reg 1 Reg 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 Binding Personnel Custodial Maintenance Services Printing $ 300,000 $ 65 900$ 93,700 $ 415,000 $ 170,000 (300,000) Departmental costs before allocations Allocations Personnel costs Custodial services costs Maintenance costs Total costs after allocations Predetermined overhead rate 0 65.900 93.700 415,000 2000 * Reg Req2 > Req 1 Req 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 Custodial Personnel Maintenance Printing Services $ 300,000 $ 65,900 $ 93,700 $ 415,000 $ Binding 170,000 Departmental costs before allocations Allocations Personnel costs Custodial services costs Maintenance costs Total costs after allocations Predetermined overhead rate 300,000 65.900 93,700 415,000 170,000 4B and 11(1) Saved Total hours 3,500 15,200 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 Complete this question by entering your answers in the tabs below. k 1 Req 1 Reg 2 Reg nces 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. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Show less Total Overhead Cost Stop down mothod Direct method