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.DepartmentTotal Labor-HoursSquare Feet of Space OccupiedNumber of EmployeesMachine-HoursDirect Labor-HoursPersonnel16,40012,60027 Custodial Services8,6003,90049 Maintenance14,30010,20065 Printing30,60040,300109162,00013,000Binding101,00021,00030741,00080,000 170,90088,000557203,00093,000Budgeted overhead costs in each department for the current year are shown below:Personnel$ 320,000Custodial Services65,300Maintenance93,300Printing419,000Binding166,000Total budgeted cost$ 1,063,600Because 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-HoursDirect Labor-HoursPrinting Department2,8001,100Binding Department40013,700Total hours3,20014,800Calculate 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.

Under the direct method, service department costs are directly attributed to the production departments using the allocation base. In this method, cost of service department is not attributed to another service department.The following are the excel formulas for above calculations:The following are the excel formulas for above calculations:(1) Allocation under Step method was performed above.(2) Allocation under Direct method was performed above.(3) Total overhead cost is $46,225.

Answered: Highland Publishing Company is a large…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Department	Total Labor-Hours	Square Feet of Space Occupied	Number of Employees	Machine-Hours	Direct Labor-Hours
Personnel	16,400	12,600	27
Custodial Services	8,600	3,900	49
Maintenance	14,300	10,200	65
Printing	30,600	40,300	109	162,000	13,000
Binding	101,000	21,000	307	41,000	80,000
	170,900	88,000	557	203,000	93,000

Personnel	$ 320,000
Custodial Services	65,300
Maintenance	93,300
Printing	419,000
Binding	166,000
Total budgeted cost	$ 1,063,600

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 2,800 1,100

Binding Department 400 13,700

Total hours 3,200 14,800
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	2,800	1,100
Binding Department	400	13,700
Total hours	3,200	14,800

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