Question

The following chart shows some basic data for the company:

Hourly market rate for staff (the price the company would have to pay from an outside contractor for staff services)	$100
Average hourly cost rate for staff (the average price the company pays to its staff)	$50
Number of paychecks issued by Audit Division	110
Number of paychecks issued by Tax Division	340
Total expense for Payroll Office	$31,500
Amount of assets invested in Audit Division by BOR CPAs, Inc.	$10,000,000
Amount of assets invested in Tax Division by BOR CPAs, Inc.	$5,000,000

Payroll

Mr. Bailey would like you to start by analyzing the Payroll Office expenses, and allocating the total expenses to each division. He has decided to use the number of payroll checks as the activity base for the allocation.

Fill in the following blanks, allocating the total expense for the Payroll Office to each of the two divisions.

Payroll Charge Rate $ per payroll check $31,500

Division	Support Department Allocations
Audit Division	$7,700
Tax Division	$23,800

Complete the following Divisional Income Statements with your data from the Payroll.

BOR CPAs, Inc. Divisional Income Statements For the Year Ended December 31, 20Y8
	Audit Division	Tax Division	Total Company
Fees earned:
Audit fees (12 engagements)	$900,000		$900,000
Tax fees (45 engagements)		$708,750	708,750
Transfer-pricing fees			0
Expenses:
Variable:
Audit hours provided by Audit Division	(180,000)		(180,000)
Tax hours provided by Tax Division		(236,250)	(236,250)
Excess capacity hours paid to salaried staff		(40,000)	(40,000)
Audit hours provided by Tax Division		0	0
Fixed expenses	(50,000)	(65,500)	(115,500)
Operating income before support department allocations	$670,000	$367,000	$1,037,000
Support department allocations for payroll
Operating income	$	$	$

Answer 1

For the Year Ended December 31, 20Y8
	Audit Division	Tax Division	Total Company
Fees earned:
Audit fees (12 engagements)	$900,000		$900,000
Tax fees (45 engagements)		$708,750	708,750
Transfer-pricing fees			0
Expenses:
Variable:
Audit hours provided by Audit Division	-180,000		-180,000
Tax hours provided by Tax Division		-236,250	-236,250
Excess capacity hours paid to salaried staff		-40,000	-40,000
Audit hours provided by Tax Division		0	0
Fixed expenses	-50,000	-65,500	-115,500
Operating income before support department allocations	$670,000	$367,000	$1,037,000
Support department allocations for payroll	-7700	-23800	-31500
Operating income	$662,300	$343,200	$1,005,500
Operating Ratio	73.59	48.42
Support Dept Expences Shjare by Investment base	10	5	15
Operating income before support department allocations	$670,000	$367,000	$1,037,000
Support department allocations for payroll	(21,000.00)	(10,500.00)	(31,500.00)
Operating income	$649,000	$356,500	$1,005,500
Operating Ratio	72.11	50.30
Support Dept Expences Shjare by Revenu base	$900,000	$708,750	1608750
Operating income before support department allocations	$670,000	$367,000	$1,037,000
Support department allocations for payroll	($17,622.38)	($13,877.62)	(31,500.00)
Operating income	$652,378	$353,122	$1,005,500
Operating Ratio	72.49	49.82
Analysis of Revenu
Number of checks	73.59	48.42
Investment base	72.11	50.30
Revenu Base	72.49	49.82