Question

1. In divisional income statements prepared for LeFevre Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $85,584, and the Purchasing Department had expenses of $25,370 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

   		Residential		Commercial		Government Contract
   Sales		$530,000		$703,000		$1,614,000
   Number of employees:
   	Weekly payroll (52 weeks per year)	225		80		85
   	Monthly payroll	28		39		26
   Number of purchase
   	requisitions per year	1,800		1,300		1,200

   a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.

   	Residential	Commercial	Government Contract	Total
   Number of payroll checks:
   Weekly payroll
   Monthly payroll
   Total
   Number of purchase requisitions per year:

   b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. If required, round your answers to two decimal places. Do not round your interim calculations, round your answers to two decimal places, if required.

   Service department charge rates:
   Payroll Department	$ payroll distribution
   Purchasing Department	$ per requisition

   	Residential	Commercial	Government Contract	Total
   Service department charges:
   Payroll Department	$	$	$	$
   Purchasing Department
   Total	$	$	$

   c. Residential's service department charge is

   • higher
   • lower
   than the other two divisions because Residential is a
   • heavy
   • light
   user of service department services. Residential has many employees on a weekly payroll, which translates into a
   • larger
   • smaller
   number of check-issuing transactions.

Answer 1

a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.
	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll  = Weekly payroll × 52	11700	4160	4420
Monthly payroll = Monthly payroll × 12	336	468	312
Total	12036	4628	4732	21396
Number of purchase requisitions per year:	1800	1,300	1200	4300
b.
Service department charge rates:
Payroll Department = $85,584/21396	$                 4.00	payroll distribution
Purchasing Department ($25370/4300)	$                 5.90	per requisition
	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	$        48,144.00	$     18,512.00	$         18,928.00	$     85,584.00
Purchasing Department	$        10,620.00	$       7,670.00	$           7,080.00	$     25,370.00
Total	$        58,764.00	$     26,182.00	$         26,008.00	$  1,10,954.00
c. Residential's service department charge is
higher
than the other two divisions because Residential is a
heavy
user of service department services. Residential has many employees on a weekly payroll, which translates into a
larger
number of check-issuing transactions.