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 $38,168, and the Purchasing Department had expenses of $15,660 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$327,000		$434,000		$996,000
Number of employees:
	Weekly payroll (52 weeks per year)	165		85		90
	Monthly payroll	36		47		34
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	Total
Number of payroll checks:
Weekly payroll	8,580	4,420	4,680	17,680
Monthly payroll	432	564	408	1,404
Total	9,012	4,984	5,088	19,084
Number of purchase requisitions per year	2,300	1,600	1,500	5,400

b) The service department charge rates:

Service department charge rates:	Total expenses	Total cost driver	Service department charge rate
Payroll department	$38,168	19,084	$2.00
Purchasing department	$15,660	5,400	$2.90

Payroll and purchasing costs charged to the divisions:

	Residential	Commercial	Government	Total
Service department charges
Payroll department	18,024	9,968	10,176	38,168
Purchasing department	6,670	4,640	4,350	15,660
Total	24,694	14,608	14,526	53,828

c) Residentials service department charge is higher than the other two divisions becuase residential is avid user of service department services. Residential has many employees on a weekyl payroll which translates into a higher number of check issuing transactions.