Question

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 $69,056, 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)	180		60		65
	Monthly payroll	36		47		34
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 ______ than the other two divisions because Residential is a ________ user of service department services. Residential has many employees on a weekly payroll, which translates into a ________ number of check-issuing transactions.

Answer 1

• [a]

	Residential	Commercial	Government contract	Total
No. of payroll checks:
Weekly Payroll [no of employees x 52]	9360	3120	3380
Monthly payroll [no of employees x 12]	432	564	408
Total	9792	3684	3788	17264
No. of purchase requisititon per year	1800	1300	1200	4300

• [b]

	Cost	Allocation base	Service Department charge rate
Payroll Department	$                 69,056.00	17,264	$                    4.00	per payroll distribution
Purchasing Department	$                 25,370.00	4,300	$                    5.90	per requisition

	Residential	Commercial	Government Contract	Total
Service Department charges:
Payroll Department	$                 39,168.00	$          14,736.00	$          15,152.00	$        69,056.00
Purchasing Department	$                 10,620.00	$            7,670.00	$            7,080.00	$        25,370.00
Total	$                 49,788.00	$          22,406.00	$          22,232.00	$        94,426.00

• [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.