Question

Service Department Charges 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 $74,544, and the Purchasing Department had expenses of $31,270 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Government Residential Commercial Contract Sales $654,000 $866,000 $1,989,000 Number of employees: Weekly payroll (52 weeks per year) 155 85 90 Monthly payroll 38 49 36 Number of purchase requisitions per year 2,200 1,600 1,500 a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division Government Residential Total Commercial Contract 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 distribution Payroll Department

Answer 1

A) .

	Residential	Commercial	Government Contract	Total
Number of Payroll checks;
Weekly Payroll No.of employees * 52	8,060	4,420	4,680	17,160
Monthly Payroll No.of employees * 12	456	588	432	1,476
Total	8,516	5,008	5,112	18,636
Number of Purchase requsition per year	2,200	1,600	1,500	5,300

B) The first step is to calculate the activity rates;

	Payroll Cost	Purchasing Cost
Estimated Overhead Cost	$ 74,544	$ 31,270
Estimated Overhead Driver	18,636 Payroll Checks	5,300 Purchase Requsition
Charge Back Rate	$ 4 Per Payroll Check	$ 5.90 Per Purchase Requisition

The annual amount per department are;

	Residential	Commecial	Government Contract	Total
Total Number of Payroll Checks	8,516	5,008	5,112	18,636
Activity Rate	$ 4	$ 4	$ 4	$ 4
Payroll Allocated	$ 34,064	$ 20,032	$ 20,448	$ 73,452
Number of Purchase Requsitions Per Year	2,200	1,600	1,500	5,300
Activity Rate	$5.90	$ 5.90	$ 5.90	$ 5.90
Purchasing Cost Allocated	12,980	9,440	8,850	31,270

C).

Residential service department charge is HIGHER than the other two divisions because Residential is a HEAVY user of service department service.

Residential has many employees on a weekly payroll, which translates into a LARGER number of check issuing transactions.