Question

In: Accounting

In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to...

In divisional income statements prepared for Demopolis 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 $39,960, and the Purchasing Department had expenses of $16,530 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

Residential Commercial Government Contract
Sales $ 345,000 $ 458,000 $ 1,051,000
Number of employees:
Weekly payroll (52 weeks per year) 205 75 80
Monthly payroll 32 43 30
Number of purchase requisitions per year 2,400 1,700 1,600


Required:

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 × 52
   Monthly payroll × 12
      Total
Number of purchase requisitions per year

b. Using the cost driver information in (a), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. Do not round interim calculations. Round your answers to two decimal places.

Support department allocation rates:
   Payroll Department $ per distribution
   Purchasing Department $ per requisition


Residential Commercial Government Contract Total
Support department allocations:
   Payroll Department $ $ $ $
   Purchasing Department
      Total $ $ $

c. Residential's support department allocations are   than the other two divisions because Residential is a   user of support department services. Residential has many employees on a weekly payroll, which translates into a   number of payroll transactions.

Solutions

Expert Solution

  • Requirement [a]

Residential

Commercial

Government contract

Total

No. of payroll checks:

Weekly Payroll [no of employees x 52]

10660

3900

4160

Monthly payroll [no of employees x 12]

384

516

360

Total

11044

4416

4520

19980

No. of purchase requisititon per year

2400

1700

1600

5700

  • [b]

Cost

Allocation base

Service Department charge rate

Payroll Department

$                 39,960.00

                   19,980

$                    2.00

per payroll distribution

Purchasing Department

$                 16,530.00

                     5,700

$                    2.90

per requisition

Residential

Commercial

Government Contract

Total

Service Department charges:

Payroll Department

$                 22,088.00

$            8,832.00

$            9,040.00

$        39,960.00

Purchasing Department

$                   6,960.00

$            4,930.00

$            4,640.00

$        16,530.00

Total

$                 29,048.00

$          13,762.00

$          13,680.00

$        56,490.00

  • [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.


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