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 $69,232, and the Purchasing Department had expenses of $31,270 for the year. The following annual data for Residential Commercial, and Government Contract divisions were obtaine from corporate records: Government Residential Commercial Contract Sales $654,000 $866,000 $1,989,000 Number of employees Weekly payroll (52 weeks per year) 185 Monthly payroll 30 Number of purchase requisitions per year 1,600 1,500 a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division 2,200 Residential Commercial Government Contract Total Number of payroll checks Weekly payroll Monthly payroll

Answer 1

Answers

[a]

	Residential	Commercial	Government contract	Total
No. of payroll checks:
Weekly Payroll [no of employees x 52]	9620	3120	3380
Monthly payroll [no of employees x 12]	360	492	336
Total	9980	3612	3716	17308
No. of purchase requisititon per year	2200	1600	1500	5300

[b]

	Cost	Allocation base	Service Department charge rate
Payroll Department	$                 69,232.00	17,308	$                    4.00	per payroll distribution
Purchasing Department	$                 31,270.00	5,300	$                    5.90	per requisition

	Residential	Commercial	Government Contract	Total
Service Department charges:
Payroll Department	$                 39,920.00	$          14,448.00	$          14,864.00	$        69,232.00
Purchasing Department	$                 12,980.00	$            9,440.00	$            8,850.00	$        31,270.00
Total	$                 52,900.00	$          23,888.00	$          23,714.00	$      100,502.00

[c]

Residential's service department charge is HIGHER than the other two divisions because Residential is a LARGER  user of service department services. Residential has many employees on a weekly payroll, which translates into a LARGER or HIGHER number of check-issuing transactions.