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 $49,020, and the Purchasing Department had expenses of $28,160 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$ 589,000		$ 780,000		$ 1,791,000
Number of employees:
	Weekly payroll (52 weeks per year)	125		80		85
	Monthly payroll	32		43		30
Number of purchase requisitions per year		2,700		1,900		1,800

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

Part A

	Residential	Commercial	Government
No of Weekly payroll	125	80	85
Multiply: Weeks per year	52	52	52
Number of payroll checks for weekly payroll	6,500	4,160	4,420
No of Monthly payroll	32	43	30
Multiply: months per year	12	12	12
Number of payroll checks for monthly payroll	384	516	360
	Residential	Commercial	Government	Total
Number of payroll checks:
Weekly payroll × 52	6,500	4,160	4,420	15,080
Monthly payroll × 12	384	516	360	1,260
Total	6,884	4,676	4,780	16,340
Number of purchase requisitions per year	2,700	1,900	1,800	6,400

Part B

Support department allocation rates:	Costs	Divided: total activity	Cost activity rate
Payroll Department	$            49,020	16,340	$                 3.00	per distribution
Purchasing Department	$            28,160	6,400	$                 4.40	per requisition

Last Part

	Residential	Commercial	Government	Total
Number of total payroll checks	6,884	4,676	4,780	16,340
Multiply: Cost activity rate for payroll	$                 3.00	$                   3.00	$                 3.00	$          3.00
Allocated Payroll Department costs	$            20,652	$              14,028	$            14,340	$     49,020
Number of purchase requisitions per year	2,700	1,900	1,800	6,400
Multiply: Cost activity rate for purchase	$                 4.40	$                   4.40	$                 4.40	$          4.40
Allocated Purchasing Department costs	$            11,880	$                 8,360	$              7,920	$     28,160
	Residential	Commercial	Government	Total
Allocated Payroll Department costs	$            20,652	$              14,028	$            14,340	$     49,020
Allocated Purchasing Department costs	$            11,880	$                 8,360	$              7,920	$     28,160
Total	$            32,532	$              22,388	$            22,260	$     77,180