Question

Service Department Charges 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 $73,392, and the Purchasing Department had expenses of $37,760 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Residential Commercial Government Contract Sales $ 789,000 $ 1,046,000 $ 2,402,000 Number of employees: Weekly payroll (52 weeks per year) 205 60 65 Monthly payroll 30 41 28 Number of purchase requisitions per year 2,700 1,900 1,800 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. Do not round your interim calculations, round your answers to two decimal places, if required. Service department charge rates: Payroll Department $ per payroll check Purchasing Department $ per purchase 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 payroll transactions. Feedback a. Add the number of weekly and monthly payroll checks for each division. Add the number of requisitions for each division. b. Divide the Payroll and Purchasing expenses by the appropriate activity base from (a). Then apply the rate per activity by the actual checks and requisitions. c. Consider how each department functions within the business. Learning Objective 3.

Answer 1

a	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 (250*52),(60*52), (65*52)	10660	3120	3380	17160
	Monthly payroll (30*12), (41*12), (28*12)	360	492	336	1188
	Number of purchase requisition per year	2700	1900	1800	6400
b	Service department charge rates:
	Payroll department
	Total cost	$73,392
	Total payroll checks	18348
	Payroll department charge rate per payroll	$4.00
	Purchasing department
	Total Cost	$37,760
	Total number of purchase requisition per year	6400
	Purchasing department charge rate	$5.90
		Residential	Commercial	Government Contract	Total
	Service Department charges:
	Payroll department	$44,080.00	$14,448.00	$14,864.00	$73,392.00
	Purchase department	$15,930.00	$11,210.00	$10,620.00	$37,760.00