Question

"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. 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 Number of Employees Machine - Hours Direct Labor-Hours 24 49 Department Personnel Custodial Services Maintenance Printing Binding Total Labor Square Feet of Hours Space Occupied 16,400 12,080 8,300 3,700 14,500 10, 800 30,800 41,000 103,000 20,400 173,000 87.900 65 101 308 547 165,000 41,000 206,000 14,000 75,000 89,000 Budgeted overhead costs in each department for the current year are shown below Personnel del Can $ 320,000 200

Answer 1

Dear Student , below answer completely based on allocation of cost under Step Down method as well as direct method ,, Pleas check line by line and any doubt on any part , please drop me message , I will support you accordingly.

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Budgeted Overhead cost in each department for the current yer
	Amnt($)
Personnel	3,20,000
Custodial Servuce	65,300
Maintenance	94,000
Printing	4,15,000
Binding	1,67,000
Total cost	10,61,300
We need to allocated the above cost on the basis of correct parameter
Basis of allocation of personnel cost on == " Number of Employees"
	Number of employees
Personnel	24
Custodial Servuce	49
Maintenance	65
Printing	101
Binding	308
Total Number of person	547
So need to derived per employee cost)( cost driver)
So number of employee to allocated cost = 547-24
Personnel $	3,20,000
Allocated personnel cost as below
Custodial Service	29,981	(49/523*$320000
Maintenance	39,771	(65/523*$320000
Printing	61,797	(101/523*$320000
Binding	1,88,451	(308/523*$320000
Total Personnel cost	3,20,000

Custodial Service $	65,300
Allocation of custodian service cost amomg Maintenance + Printing + Binding
on the basis of " Square feet of space occupied"
	Square feet of Space occupied
Personnel	12,000
Custodial Servuce	3,700
Maintenance	10,800
Printing	41,000
Binding	20,400
Total	87,900
Custodial Service $-a	95,281
Tota Square feet ( after personnel + Custodian Service)
(87900-12000-3700)-b	72,200
Cost per Square feet of space occupied(a/b)	1.32
Custodial Service $-allocated as below	95,281
Maintenance	14,253	(1.32*10800
Printing	54,107	(1.32*41000
Binding	26,921	(1.32*20300
Total	95,281
Now maintenance cost to allocate among Printing + Binding
Maintenance$-a	1,48,023
Machine hr basis Allocation
Printing	1,65,000
Binding	41,000
Total hrs b	2,06,000
Rate per hr (a/b)	0.72
Maint cost allocated as below
Printing	1,18,562	(0.72*165000)
Binding	29,461	(0.72*41000)
Total	1,48,023.10

Allocation of cost( STEP DOWN METHOD )	Personnel $	Custodial Service $	Maintenance$	Printing $	Binding $
Before allocation	3,20,000	65,300	94,000	4,15,000	1,67,000
Allocate on above basis ( as per working above)	-3,20,000	29,981	39,771	61,797	1,88,451
Total cost	-	95,281	1,33,771	4,76,797	3,55,451
Allocate on above basis ( as per working above)		-95,281	14,253	54,107	26,921
Total cost		-	1,48,023	5,30,904	3,82,373
Allocate on above basis ( as per working above)			-1,48,023	1,18,562	29,461
Total cost- M			-	6,49,466	4,11,834
Finally Printing division cost can allocate on ( pre determined rate ) on Machine Hr basis (N)				1,65,000
Pre determined rate (M/N)				3.94		($649466/165000)
Finally Binding division cost can allocate on ( pre determined rate ) on Direct labour Hr basis (O)					75000
Pre determined rate (M/O)					5.49	($411834/75000)

Allocation of cost( DIRECT METHOD )	Personnel $	Custodial Service $	Maintenance$	Printing $	Binding $
Before allocation	3,20,000	65,300	94,000	4,15,000	1,67,000
Allocation of Personnel cost directly among - Printing + Binding on the basis of Number of employee
Printing - 101
Binding -308
Total Number of Employee
101+308=409
Allocationof cost	-3,20,000			79,022	2,40,978
Printing -$320000*101/409=$79022
Binding -$320000*308/409=$240978
Total cost	-	65,300	94,000	4,94,022	4,07,978
Allocateof custodial Service on Suqare feet of space occupied
Allocationof cost		-65,300
Printing -$65300*41000/61400=$43604				43,604	21,696
Binding -$65300*20400/61400=$21696
Printing - 41000
Binding -20400
Total Squre foot - 61400
Total cost		-	94,000	5,37,626	4,29,674
Allocationof cost			-94,000	75,291	18,709
Maint cost allocate on machine Hr
Printing - 165000
Binding -41000
Total Machine hr-206000
Printing -$94000*(165000/20600)=$75291
Binding -$94000*(41000/20600)=$18709
Total cost- M1			-	6,12,918	4,48,382
Finally Printing division cost can allocate on ( pre determined rate ) on Machine Hr basis (N)				1,65,000
Pre determined rate (M1/N)				3.71		($612918/165000)
Finally Binding division cost can allocate on ( pre determined rate ) on Direct labour Hr basis (O)					75000
Pre determined rate (M1/O)					5.98	($448382/75000)

Answer part 3

Step Down method ancd calculate below data
We already calcuated rate under STEP DONW approach
Pre determined rate ( as above ) Printing based on Machien hr	3.94
Pre determined rate ( as above ) Bindingbased on Labour hr	5.49
	Machine Hr-a	Rate / hr -b	Cost(a*b)
Printing	2,000	3.94	7,872
	Labour Hr-a
Binding	13,500	5.49	74,130
Total cost			82,002
We already calcuated rate under DIRECT METHOD approach
Pre determined rate ( as above ) Printing based on Machien hr	3.71
Pre determined rate ( as above ) Bindingbased on Labour hr	5.98
	Machine Hr-a	Rate / hr -b	Cost(a*b)
Printing	2,000	3.71	7,429
	Labour Hr-a
Binding	13,500	5.98	80,709
Total cost			88,138