I can\'t understand what\'s happening here, said Mike Holt, president of Severso

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I can't understand what's happening here, said Mike Holt, president of Severson Products Inc. We always seem to bid too high on jobs that require a lot of labour time in the Finishing Department, and we always seem to get every job we bid on that requires a lot of machine time in the Milling Department. Yet we don't seem to be making much money on those Milling Department jobs. I wonder if the problem is in rates. Severson Products manufactures high-quality wood products to customers' specifications. Some jobs take a large amount of machine work in the Milling Department, and other jobs take a large amount of hand-finishing work in the Finishing Department. In addition to the Milling and Finishing D company has 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 most appropriate allocation the Labour- of Space Number of Machine-Labour- Hours HoursOccupied Employees Hours 16,000 12,000 Machinery Maintenance 15,000 10,000 20,000 3,000 9,000 10,000 Milling Finishing. 30,000 100,000 100 160,000 20,000 40,000 70,000 70,000 85,000 525 200,000 90,000 r are as follows: 320,000 65,400 93,600 416,000 166,000 Milling Finishing Total budgeted cost 1,061,000

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Custodial Machinery Milling Finishing Total Base Cafeteria Services Maint. Depart. Dept. Costs Pre-Allocation $ $320,000 $65,400 $93,600 $416,000 $166,000 $1,061,000 Cafeteria Costs No of Employees ($320,000) $25,600 $38,400 $64,000 $192,000 $0 Sub-total $0 $91,000 $132,000 $480,000 $358,000 $1,061,000 Custodial Costs Space ($91,000) $13,000 $52,000 $26,000 $0 Sub-total $0 $145,000 $532,000 $384,000 $1,061,000 Mach. Maint. Costs Machine Hours ($145,000) $116,000 $29,000 $0 Post-Allocation Costs $0 $648,000 $413,000 $1,061,000 Base for pre-determined MOH rate 160,000 70,000 Pre-determined MOH rate $4.05 $5.90 per Mach Hr. per D/L Hr.

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