Question

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 $33,952, and the Purchasing Department had expenses of $19,430 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Residential Commercial Government Contract Sales $406,000 $538,000 $1,236,000 Number of employees: Weekly payroll (52 weeks per year) 170 65 70 Monthly payroll 28 39 26 Number of purchase requisitions per year 2,800 2,000 1,900 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 two decimal places, if required. Service department charge rates: Payroll Department $ payroll distribution Purchasing Department $ per requisition Residential Commercial Government Contract Total Service department charges: Payroll Department $ $ $ $ Purchasing Department Total $ $ $ c. Residential's service department charge is than the other two divisions because Residential is a user of service department services. Residential has many employees on a weekly payroll, which translates into a number of check-issuing transactions.

Answer 1

Ques 1
	Checks	Purchase requisitons
Residential	9176	2800
Commercial	3848	2000
Government	3952	1900
	Residential	Commercial	Government
weekly	170	65	70
no. of weeks	52	52	52
(a)	8840	3380	3640
monthly	28	39	26
no. of months	12	12	12
(b)	336	468	312
total(a+b)	9176	3848	3952
Ques 2
Lets first detrmine rates
		Activity	Rate
payroll	33952	16976	2
purchasing	19430	6700	2.9
Now allocate
	Payroll			Purchase
	Activity	rate	amount	Activity	rate	amount
Residential	9176	$                               2.00	$         18,352	2800	$ 2.90	$ 8,120
Commercial	3848	$                               2.00	$           7,696	2000	$ 2.90	$ 5,800
Government	3952	$                               2.00	$           7,904	1900	$ 2.90	$ 5,510
Ques 3
It appears that the Residential Division has more individuals who are paid on a weekly basis and a monthly basis making their cost to the Payroll Department more than the Commercial and Government contract departments. This could be due to more temporary or low salary employees that get paid on a weekly basis. The Residential Department also has more purchase requisitions than the other two departments making the cost back to the Purchasing Department greater than the other two departments also.