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 $67,264, and the Purchasing Department had expenses of $33,630 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Government Residential Commercial Contract $703,000 $932,000 $2,139,000 Sales Number of employees: Weekly payroll (52 weeks per year) Monthly payroll 170 38 60 49 65 36 Number of purchase requisitions per year 2,400 1,700 1,600 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. If required, round your answers to two decimal places. Do not round your interim calculations, round your answers to

Answer 1

a)

Total 2 BC Residential Commercial Government contract nber of payroll checks: 3 Weekly payroll 8840 3120 3380 4 Monthly payroll 456 588 432 5 Total 9296 3708 3812 6 Number of purchase requisitions per year 2.400 1.700 1,600 15340 1476 16816 18292

Working as follows:

Government contract Total 2. B 1 Residential Commercial Number of payroll checks: 3 Weekly payroll =170*52 =60*52 4 Monthly payroll =38*12 =49*12 5 Total =SUM(B3-B4) =SUM(C3-C4) 6 Number of purchase requisitions per year 2400 1700 =65*52 =36*12 =SUMD3:D4) 1600 =SUM(B3:D3) =SUM(B4:D4) =SUM(E3 E4) =SUM(E4:E5)

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b)

Service department charge rates:
Payroll department ($67,264/16816)	$4	Per payroll check
Purchasing department ($33,630/18,292)	$1.83	Per purchase requisition

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15 Government contract Total 17 Payroll Department 18 Purchasing Department 19 Total Residential Commercial Service department charges: 37184 14832 4392 3111 41576 17943 15248 2928 18176 67264 10431 77695

Working as follows:

15 | Government contract Total 16 17 Payroll Department 18 Purchasing Department 19 Total Residential Commercial Service department charges: =9296*4 =3708*4 =2400*1.83 =1700*1.83 =SUMB17-B18) =SUM(C17-C18) =3812*4 =1600*1.83 =SUMD17-D18) =SUM(B17-D17) | =SUMB18-D18) =SUM(E17-E18)

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c)

Residential's service department charge is higher from the other divisions, the reason behind is that Residential is a major user of service department and residential has many employees on a weekly payroll which increase larger number of payroll transactions.