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 $41,232, 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)	200		85		90
	Monthly payroll	28		39		26
Number of purchase requisitions per year		2,600		1,800		1,700

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
Monthly payroll × 12
Total
Number of purchase requisitions per year

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	$ per distribution
Purchasing Department	$ per requisition

	Residential	Commercial	Government Contract	Total
Support department allocations:
Payroll Department	$	$	$	$
Purchasing Department
Total	$	$	$

Answer 1

Answer

• Requirement [a]

	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll × 52	10400	4420	4680	19500
Monthly payroll × 12	336	468	312	1116
Total	10736	4888	4992	20616
Number of purchase requisitions per year	2600	1800	1700	6100

• Requirement [b]

Support department allocation rates:
Payroll Department	$                  2.00	$ per distribution [$41232 / 20616]
Purchasing Department	$                  2.90	$ per requisition [$17690 / 6100]

	Residential	Commercial	Government Contract	Total
Support department allocations:
Payroll Department	$21,472	$9,776	$9,984	$41,232
Purchasing Department	$7,540	$5,220	$4,930	$17,690
Total	$29,012	$14,996	$14,914	$58,922