“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 offering 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. Department Total Labor-Hours Square Feet of Space Occupied Number of Employees Machine-Hours Direct Labor-Hours Personnel 16,700 12,900 29 Custodial Services 8,900 3,100 47 Maintenance 14,400 10,800 61 Printing 30,100 40,400 107 164,000 13,000 Binding 106,000 20,300 306 45,000 74,000 176,100 87,500 550 209,000 87,000 Budgeted overhead costs in each department for the current year are shown below: Personnel $ 330,000 Custodial Services 65,100 Maintenance 93,600 Printing 420,000 Binding 162,000 Total budgeted cost $ 1,070,700 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Required: 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. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. Assume during the current year the company bids on a job requiring machine and labor time as follows: Machine-Hours Direct Labor-Hours Printing Department 2,500 1,400 Binding Department 700 13,200 Total hours 3,200 14,600 Calculate the overhead cost assigned to the job if the company used the overhead rates developed in (1) above. Then calculate the overhead cost assigned to the job if the company used the overhead rates developed in (2) above.

“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 offering 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. Department Total Labor-Hours Square Feet of Space Occupied Number of Employees Machine-Hours Direct Labor-Hours Personnel 16,700 12,900 29 Custodial Services 8,900 3,100 47 Maintenance 14,400 10,800 61 Printing 30,100 40,400 107 164,000 13,000 Binding 106,000 20,300 306 45,000 74,000 176,100 87,500 550 209,000 87,000 Budgeted overhead costs in each department for the current year are shown below: Personnel $ 330,000 Custodial Services 65,100 Maintenance 93,600 Printing 420,000 Binding 162,000 Total budgeted cost $ 1,070,700 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Required: 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. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. Assume during the current year the company bids on a job requiring machine and labor time as follows: Machine-Hours Direct Labor-Hours Printing Department 2,500 1,400 Binding Department 700 13,200 Total hours 3,200 14,600 Calculate the overhead cost assigned to the job if the company used the overhead rates developed in (1) above. Then calculate the overhead cost assigned to the job if the company used the overhead rates developed in (2) above.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 34P: Kimball Company has developed the following cost formulas:...

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Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine-Hours	Direct Labor-Hours
Personnel	16,700	12,900	29
Custodial Services	8,900	3,100	47
Maintenance	14,400	10,800	61
Printing	30,100	40,400	107	164,000	13,000
Binding	106,000	20,300	306	45,000	74,000
	176,100	87,500	550	209,000	87,000

Personnel	$ 330,000
Custodial Services	65,100
Maintenance	93,600
Printing	420,000
Binding	162,000
Total budgeted cost	$ 1,070,700

Required:

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.
Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.
Assume during the current year the company bids on a job requiring machine and labor time as follows:

Machine-Hours Direct Labor-Hours

Printing Department 2,500 1,400

Binding Department 700 13,200

Total hours 3,200 14,600
1. Calculate the overhead cost assigned to the job if the company used the overhead rates developed in (1) above. Then calculate the overhead cost assigned to the job if the company used the overhead rates developed in (2) above.

	Machine-Hours	Direct Labor-Hours
Printing Department	2,500	1,400
Binding Department	700	13,200
Total hours	3,200	14,600

please anser those 3 requirements

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