Question

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 $33,952, and the Purchasing Department had expenses of $12,470 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$ 261,000		$ 345,000		$ 793,000
Number of employees:
	Weekly payroll (52 weeks per year)	140		80		85
	Monthly payroll	28		39		26
Number of purchase
	requisitions per year	1,800		1,300		1,200

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. Do not round your interim calculations, round your answers to two decimal places, if required.

Service department charge rates:
Payroll Department	$ per payroll check
Purchasing Department	$ per purchase requisition

	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	$	$	$	$
Purchasing Department
Total	$	$

Answer 1

SOLUTION

(A)

	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll	(140*52) = 7,280	(80*52) = 4,160	(85*52) = 4,420	15,860
Monthly payroll	(28*12) = 336	(39*12) = 468	(26*12) = 312	1,116
Total	7,616	4,628	4,732	16,976
Number of purchase requisitions per year	1,800	1,300	1,200	4,300

(B)

Service department charge rates:
Payroll Department (33,952/16,976)	$2 per payroll check
Purchasing Department (12,470/4,300)	$2.9 per purchase requisition

	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	(7,616*2) = 15,232	(4,628*2) = 9,256	(4,732*2) = 9,464	33,952
Purchasing Department	(1,800*2.9) = 5,220	(1,300*2.9) = 3,770	(1,200*2.9) = 3,480	12,470
Total	20,452	13,026	12,944	46,422