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 $64,560, and the Purchasing Department had expenses of $40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:
Residential Commercial Government Contract
Sales $2,000,000 $3,250,000 $2,900,000
Number of employees:
Weekly payroll (52 weeks per year) 400 250 150
Monthly payroll 80 30 10
Number of purchase requisitions per year 7,500 3,000 2,000

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 interim calculations. Round your answers to two decimal places.

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 $ $ $
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 payroll transactions.

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

a).  

Number Of Payroll Checks       Residential Government Contract  Commercial Total

Weekly Payroll 52 × 400 = 20,800 52 × 150=7,800 52 × 250 = 13,000 41,600

Monthly Payroll 12 × 80 = $960 12 × 10 =120 12 × 30=360 1,440

Total                           21,760       7,920 13,360       43,040

Number of Purchase Requisitions Per Year 7,500 2,000 3,000 12,500

 

Weekly Payroll = Weeks Per Year × Payroll Per Week  

Monthly Payroll = Months Per Year × Payroll Per Month

b).Charge Rate of Service Department:-

Purchasing Department

= Purchasing Department Expenses ÷  Number of Purchase Requisitions Per Year

=  ($40,000 ÷ 12,500)

= $3.2 Per Purchase Requisition

Payroll Department

= Payroll Department Expenses ÷ Total  No. of Payroll Checks

= ($64,560 ÷ 43,040)

= $1.5 Per Payroll Check

Service Department Charges:-

Payroll Department ($) Purchasing Department ($) Total ($)

Residential  1.5 × 21,760 = 32,640 3.2 × 7,500 = 24,000 56,640

Commercial 1.5 × 13,360 = 20,040 3.2 × 3,000 = 9,600 29,640

Government Contract 1.5 × 7,920 = 11,880 3.2 × 2,000 = 6,400 18,280

Total                                64,560 40,000 104,560

 

c) Residential service department pays more than the other two divisions because residential service department is a strong user of services. Residential has some weekly payroll employees which convert into a large number of payroll transactions.