The Nickey Company uses the step method in distributing the costs of its two service departments, SI and S2, to its two producing departments, PI and P2. SI is distributed first on the basis of number of employees. S2 is distributed on the basis of machine hours. Departmental overhead rates are based on machine hours in PI and direct labor hours in P2. The following budget data are available:

Required:
(1) Develop predetermined overhead rates for the producing departments, to the nearest tenth of a cent.
(2) If Nickey Company decides to change to a plant wide rate based on direct labor hours, what will that rate be?
(3) Why are separate departmental rates preferable to a single plant wide rate?

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P1 P2 S1 S2 $10,000 $34,750 $208,000 $300,000 210 Budgeted overhead.... Number of employees. Machine hours 15 10 180 3,000 4,000 10.000 5,000