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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 were 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 (For each service department, use the allocation base that provides the best measure of service provided, as discussed in the chapter.)

Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine- Hours	Direct Labor- Hours
Personnel	20,000	4,000	10
Custodial Services	30,000	6,000	15
Maintenance	50,000	20,000	25
Printing	90,000	80,000	40	150,000	60,000
Binding	260,000	40,000	120	30,000	175,000
	450,000	150,000	210	180,000	235,000

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

Personnel	$	360,000
Custodial Services		141,000
Maintenance		201,000
Printing		525,000
Binding		373,500
Total budgeted cost	$	1,600,500

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 for the current year using 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 your answers to the nearest dollar amount.)

2.	Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the 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 your answers to the nearest dollar amount.)

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

	Machine-Hours	Direct Labor-Hours
Printing Department	15,400	900
Binding Department	800	2,000
Total hours	16,200	2,900

a.	Determine the amount of overhead that would be assigned to the job if the company uses the overhead rates developed in (1) step-down method and (2) direct method. (Round your answers to the nearest dollar amount.)

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