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 $44,208, and the Purchasing Department had expenses of $23,760 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$497,000		$658,000		$1,511,000
Number of employees:
	Weekly payroll (52 weeks per year)	110		70		75
	Monthly payroll	38		49		36
Number of purchase		---		---		---
	requisitions per year	2,300		1,600		1,500

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]	5720	3640	3900
Monthly payroll [no of employees x 12]	456	588	432
Total	6176	4228	4332	14736
No. of purchase requisititon per year	2300	1600	1500	5400

• [b]

	Cost	Allocation base	Service Department charge rate
Payroll Department	$                 44,208.00	14,736	$                    3.00	per payroll distribution
Purchasing Department	$                 23,760.00	5,400	$                    4.40	per requisition

	Residential	Commercial	Government Contract	Total
Service Department charges:
Payroll Department	$                 18,528.00	$          12,684.00	$          12,996.00	$        44,208.00
Purchasing Department	$                 10,120.00	$            7,040.00	$            6,600.00	$        23,760.00
Total	$                 28,648.00	$          19,724.00	$          19,596.00	$        67,968.00

• [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.