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 $71,312, and the Purchasing Department had expenses of $31,860 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$666,000		$883,000		$2,026,000
Number of employees:
	Weekly payroll (52 weeks per year)	145		85		90
	Monthly payroll	30		41		28
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	$	$	$

Thanks!

Answer 1

Solution to part (a):

Number of payroll checks:

	Residential	Commercial	Goverment	Total
Weekly Payroll	145 payrolls x 52 weeks = 7,540 payrolls	85 payrolls x 52 weeks = 4,420 payrolls	90 payrolls x 52 weeks = 4,680 payrolls
Monthly payroll	30 payrolls x 12 months = 360 payrolls	41 payrolls x 12 months = 492 payrolls	28 payrolls x 12 months = 336 payrolls
Total	7,540 payrolls + 360 payrolls = 7,900 payrolls	4,420 payrolls + 492 payrolls = 4,912 payrolls	4,680 payrolls + 336 payrolls = 5,016 payrolls	17,828 payrolls
Purchase requisitions per year	2,300 requisitions	1,600 requisitions	1,500 requisitions	5,400 requisitions

Solution to part (b):

Calculation of annual amount of payroll and purchasing costs charged back to residential, commercial and goverment contracts.

Rates:

Payroll department = Total payroll costs / total payrolls

= $ 71,312 / 17,828 payrolls

= $ 4 per payroll

Purchasing Department = Total expenses / Total requisitions

= $ 31,860 / 5,400 requisitions

= $ 5.9 per requisition

	Residential	Commercial	Goverment	Total
Service Department charges:
Payroll Department	7,900 payrolls x $ 4 = $ 31,600	4,912 payrolls x $ 4 = $ 19,648	5,016 payrolls x $ 4 = $ 20,064	$ 71,312
Purchasing Department	2,300 requisitions x $ 5.9 = $ 13,570	1,600 requisitions x $ 5.9 = $ 9,440	1,500 requisitions x $ 5.9 = $ 8,850	$ 31,860
Total	$ 45,170	$ 29,088	$ 28,914	$ 103,172