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 $33,056, and the Purchasing Department had expenses of $17,690 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$370,000		$490,000		$1,125,000
Number of employees:
	Weekly payroll (52 weeks per year)	120		85		90
	Monthly payroll	30		41		28
Number of purchase
	requisitions per year	2,600		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.

Answer 1

a)

	Residential	Commercial	Government	Total
Number of payroll checks:
Weekly Payroll	6,240 (120*52)	4,420 (85*52)	4,680 (90*52)	15,340
Monthly payroll	360 (30*12)	492 (41*12)	336 (28*12)	1,188
Total	6,600	4,912	5,016	16,528
No. of purchase requisitions per year	2,600	1,800	1,700	6,100

b)

Service Department charge rates
Payroll department ($33,056/16,528)	$2 per payroll distribution
Purchase department ($17,690/6,100)	$2.9 per requisition

	Residential ($)	Commercial ($)	Government contract ($)	Total ($)
Service department charges
payroll department	13,200 (6,600 * $2)	9,824 (4,912 * $2)	10,032 (5,016 * $2)	33,056
purchasing department	7,540 (2,600 * $2.9)	5,220 (1,800 * $2.9)	4,930 (1,700 * $2.9)	17,690
Total	20,740	15,044	14,962	50,746

c)

Residential's service department charge is more 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 6240 number of check-issuing transactions.