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Service Department Charges

In divisional income statements prepared for Wilborne Construction Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $119,280, and the Purchasing Department had expenses of $57,750 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

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.

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

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

c. Residential's service department charge isSelecthigherlowerItem 28than the other two divisions because Residential is aSelectheavylightItem 29user of service department services. Residential has many employees on a weekly payroll, which translates into aSelectlargersmallerItem 30number of check-issuing transactions.

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a. Add the number of weekly and monthly payroll checks for each division. Add the number of requisitions for each division.

b. Divide the Payroll and Purchasing expenses by the appropriate activity base from (a). Then apply the rate per activity by the actual checks and requisitions.

c. Consider how each department functions within the business.