Step-Down Method versus Direct Method "I can't understand what's happening here," said Mike Holt, president of Severson Products, Inc. "We always seem to bid too high on jobs that require a lot of labor time in the Finishing Department, and we always seem to get every job we bid on that requires a lot of machine time in the Milling Department. Yet we don't seem to be making much money on those Milling Department jobs. I wonder if the problem is in our overhead rates." Severson Products manufactures high-quality wood products to customers' specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand finishing work in the Finishing Department. In addition to the Milling and Finishing departments, the company has three service departments. The costs of these service departments are allocated to other departments in the order listed below. (For each service department, use the most appropriate allocation base.) Total Square Feet Direct Labor- of Space Number of Machine- Labor- Hours Occupied Employees Hours Hours Cafeteria . .. . . ... 16,000 12,000 25 Custodial Services .. 9,000 3,000 40 Machinery Maintenance 15,000 10,000 60 Milling . . .. 30,000 40,000 100 160,000 20,000 Finishing . . .. 100,000 20,000 300 40,000 70,000 170,000 85,000 525 200,000 90,000 Budgeted overhead costs in each department for the current year are as follows: Cafeteria . $ 320,000* Custodial Services 65,400 Machinery Maintenance . . . . . . 93,600 Milling . . . . . 416,000 Finishing . . ..... 166,000 Total budgeted cost $1,061,000