Check my work 1 Case 4B-6 (Algo) Step-Down Method versus Direct Method (LO4-10, LO4-11) 10 points "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 eBook wrong?" Print References 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- Hours 16,300 8,400 14,100 30,000 103,000 171,800 Square Feet of Space Occupied 13,000 3,400 10,900 40,100 20,100 87,500 Number of Employees 22 46 64 108 305 545 163,000 46,000 209,000 10,000 79,000 89,000 Budgeted overhead costs in each department for the current year are shown below: Personnel Custodial Services Maintenance Printing Binding Total budgeted cost $ 320,000 65,400 93,500 417,000 165,000 $1,060,900 Check my work 1 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. 10 points 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: eBook Print References Printing Department Binding Department Total hours Machine-Hours 2,900 500 3,400 Direct Labor-Hours 1,100 13,200 14,300 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. Reg 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 Check my work 1 Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A 10 points eBook 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 Print References Custodial Personnel Services Maintenance $ $ 320,000 $ 65,400 $ 93,500 Printing Binding $ 417,000 $ 165,000 (320,000) Departmental costs before allocations Allocations: : Personnel costs Custodial services costs Maintenance costs Total costs after allocations Predetermined overhead rate (64,300) (93,500) 0 1,100 0 417,000 165,000