This is really an odd situation,” said Jim Carter, general manager of Highland P
ID: 2533931 • Letter: T
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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 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 (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
16,800
12,800
30
—
—
Custodial Services
8,100
3,300
49
—
—
Maintenance
14,300
10,300
62
—
—
Printing
30,100
40,600
109
165,000
20,000
Binding
104,000
20,400
307
41,000
73,000
173,300
87,400
557
206,000
93,000
Budgeted overhead costs in each department for the current year are shown below:
Personnel
$
310,000
Custodial Services
65,000
Maintenance
93,300
Printing
415,000
Binding
168,000
Total budgeted cost
$
1,051,300
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.)
Personnel
Custodial Services
Maintenance
Printing
Binding
Total cost before allocations
$310,000
$65,000
$93,300
$415,000
$168,000
Allocation:
Personnel
Custodial services
Maintenance
Total overhead cost after allocations
Divide by machine-hours
Divide by direct labor-hours
Predetermined overhead rate
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.)
Personnel
Custodial Services
Maintenance
Printing
Binding
Total cost before allocations
$310,000
$65,000
$93,300
$415,000
$168,000
Allocation:
Personnel
Custodial services
Maintenance
Total overhead cost after allocations
Divide by machine-hours
Divide by direct labor-hours
Predetermined overhead rate
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
2,100
1,300
Binding Department
500
13,500
Total hours
2,600
14,800
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 intermediate calculation to 2 decimal places and round your answers to the nearest dollar amount.)
Total Overhead Cost
Step-down method
Direct method
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.)
Explanation / Answer
1)step Down Method
2) Direct Cost method
3)
Step Down Method=2100*3.92+13,500*5.53=$82,943.51
Direct Method= 2100*3.72+13,500*5.99=$88,647.41
Personal Custodial Services Maintenance Printing Binding Total Cost Before Allocation 310000 65000 93300 415000 168000 Allocation No. of Employees Square Feet Occupied Based on Machine Hours Personnel -310000 28823.53 36470.59 64117.65 180588.24 Custodial Service -93823.53 13553.75 53425.46 26844.32 Maintenance -143324.34 114798.62 28525.72 Total Overhead Cost After Allocation 0 0 0 647341.73 403958.27 Divided by Machine Hours 165000 Divided by Direct Labor Hours 73000 Predetermined Overhead Rate 3.92 5.53Related Questions
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