Service Department Charges In divisional income statements prepared for LeFevre Company, the Payroll Department costs are...

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Service Department Charges In divisional income statements prepared for LeFevre Company, the Payroll Department costs are cha

Total Number of purchase requisitions per year: ions per COC O b. Using the activity base information in (a), determine the a

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Answer 1

Answer #1

Answer:

a. Determine the total amount of payroll check and purchase requisitions processed per year by the company and each division:

Particulars	Residential	Commercial	Government Contract	Total
Number of payroll checks:
–Weekly payroll ( Number of employees × 52 weeks)	11180	3900	4160
–Monthly payroll ( Number of employees × 12)	360	492	336
Total amount of payroll checks	11540	4392	4496	20428
Number of purchase requisitions per year:	2600	1800	1700	6100

Notes:

Weekly payroll = No. Of employees × 52

Residential = 215 × 52 =11180

Commercial = 75 × 52 =3900

Government contract = 80 × 52 = 4160

Monthly payroll= No.of employees × 12

Residential = 30 × 12 = 360

Commercial = 41× 12 = 492

Government contract = 28 × 12 = 336

b. Using the activity based information in (a) determine the annual amount of payroll and purchasing costs charged back to the residential, commercial and government contract division from payroll and purchasing Services.

Service department charge rates:

Payroll Department ( payroll department Expenses ÷ Total amount of payroll checks

($61284 ÷ 20428 = $ 3 per check)

$3 per check payroll distribution

Purchasing Department ( purchasing department Expenses ÷ Total number of purchase requisitions per year)

($26840 ÷ 6100 = $4.4)

$4.4 per requisition

Particulars	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll department (Notes 1)	$34620	$13176	$13488	$61284
Purchase department( Notes 2)	$11440	$7920	$7480	$26840
Total	$46060	$21096	$20968	$88124

Notes:

1. Payroll department = Amount of payroll checks × payroll department charge rates

Residential = 11540 × 3 = $34620

Commercial = 4392 × 3 =$ 13176

Government contract = 4496 × 3 =$13488

2. Purchase department = Number of purchase requisitions per year × purchase department charge rates)

Residential = 2600 × $4.4 = $11440

Commercial = 1800 × $4.4 =$7920

Government contract = 1700 × $4.4 = $7480

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