Question

Service Department Charges

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 $53,916, and the Purchasing Department had expenses of $26,400 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$552,000		$731,000		$1,679,000
Number of employees:
	Weekly payroll (52 weeks per year)	175		70		75
	Monthly payroll	34		45		32
Number of purchase
	requisitions per year	2,500		1,800		1,700

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.

The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

	Income from Operations		Invested Assets
Retail Division	$66,500		$350,000
Commercial Division	118,400		740,000
Internet Division	116,200		830,000

a. Compute the return on investment for each division. (Round to the nearest whole number.)

Division	Percent
Retail Division	%
Commercial Division	%
Internet Division	%

b. Which division is the most profitable per dollar invested?

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Determining missing items in return and residual income computations

Data for Uberto Company are presented in the following table of rates of return on investment and residual incomes:

Invested Assets		Income from Operations		Return on Investment		Minimum Return		Minimum Acceptable Income from Operations		Residual Income
$980,000		$225,400		(a)		13%		(b)		(c)
$470,000		(d)		(e)		(f)		$56,400		$18,800
$340,000		(g)		14%		(h)		$34,000		(i)
$260,000		$54,600		(j)		12%		(k)		(l)

Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.

a.	%
b.	$
c.	$
d.	$
e.	%
f.	%
g.	$
h.	%
i.	$
j.	%
k.	$
l.	$

Answer 1

	A)		Residential	Commercial	Government Contract	Total
		Number of payroll checks:
		Weekly payroll	9100	3640	3900	16640
			(175*52)	(70*52)	(75*52)
		Monthly payroll	408	540	384	1332
			(34*12)	(45*12)	(32*12)
		Total	9508	4180	4284	17972
		Number of purchase requisitions per year:	2500	1800	1700	6000
	B)	Payroll Department = 53916/17972		3.00
		Purchasing Department = 26400/6000		4.40
		Payroll Department
		Residential	9508*3	28524
		Commercial	4180*3	12540
		Government Contract	4284*3	12852
		Purchasing Department
		Residential	2500*4.40	11000
		Commercial	1800*4.4	7920
		Government Contract	1700*4.40	7480
	C)	Retail Division = 66500/350000*100		19.00%
		Commercial Division = 118400/740000*100		16%	rounded to nearest %
		Internet Division = 116200/830000*100		14.00%
	b	Retail Division is most profitable as per dollar invested
	a)	Return on Investment = 225400/980000*100		23.00%
	b)	Minimum Acceptable Income from operations = 13%*980000		127400
	c)	Residual income = 225400-127400		98000
	d)	Income From Operations = 56400+18800		75200
	e)	Return on Investment = 75200/470000*100		16.00%
	f)	Minimum Return = 56400/470000*100		12.00%
	g)	Income from Operations = 14%*340000		47600
	h)	Minimum Return = 34000/340000*100		10.00%
	i)	Residual Income = 47600-34000		13600
	j)	Return On Investment = 54600/260000*100		21.00%
	k)	Minimum Acceptable Income from operations = 260000*12%		31200
	l)	Residual income = 54600-31200		23400