In: Accounting
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.
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 |
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 |
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.