Question

Cost Department Allocations

In divisional income statements prepared for Demopolis 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 $68,768, and the Purchasing Department had expenses of $33,630 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$ 703,000		$ 932,000		$ 2,139,000
Number of employees:
	Weekly payroll (52 weeks per year)	170		65		70
	Monthly payroll	34		45		32
Number of purchase requisitions per year		2,400		1,700		1,600

Required:

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 × 52	fill in the blank 1	fill in the blank 2	fill in the blank 3
Monthly payroll × 12	fill in the blank 4	fill in the blank 5	fill in the blank 6
Total	fill in the blank 7	fill in the blank 8	fill in the blank 9	fill in the blank 10
Number of purchase requisitions per year	fill in the blank 11	fill in the blank 12	fill in the blank 13	fill in the blank 14

b. Using the cost driver information in (a), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. Do not round interim calculations. Round your answers to two decimal places.

Support department allocation rates:
Payroll Department	$fill in the blank 15 per distribution
Purchasing Department	$fill in the blank 16 per requisition

	Residential	Commercial	Government Contract	Total
Support department allocations:
Payroll Department	$fill in the blank 17	$fill in the blank 18	$fill in the blank 19	$fill in the blank 20
Purchasing Department	fill in the blank 21	fill in the blank 22	fill in the blank 23	fill in the blank 24
Total	$fill in the blank 25	$fill in the blank 26	$fill in the blank 27

Answer 1

• [a]

	Residential	Commercial	Government contract	Total
No. of payroll checks:
Weekly Payroll [no of employees x 52]	8840	3380	3640
Monthly payroll [no of employees x 12]	408	540	384
Total	9248	3920	4024	17192
No. of purchase requisititon per year	2400	1700	1600	5700

• [b]

	Cost	Allocation base	Service Department charge rate
Payroll Department	$                 68,768.00	17,192	$                    4.00	per payroll distribution
Purchasing Department	$                 33,630.00	5,700	$                    5.90	per requisition

	Residential	Commercial	Government Contract	Total
Service Department charges:
Payroll Department	$                 36,992.00	$          15,680.00	$          16,096.00	$        68,768.00
Purchasing Department	$                 14,160.00	$          10,030.00	$            9,440.00	$        33,630.00
Total	$                 51,152.00	$          25,710.00	$          25,536.00	$      102,398.00

Residential's service department charge is HIGHER   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 LARGER  number of check-issuing transactions.