eBook

Show Me How

Question Content Area

Service Department Charges

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 $66,224, and the Purchasing Department had expenses of $37,760 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

		Residential		Commercial		Government Contract
Sales		$ 789,000		$ 1,046,000		$ 2,402,000
Number of employees:
	Weekly payroll (52 weeks per year)	115		85		90
	Monthly payroll	38		49		36
Number of purchase
	requisitions per year	2,700		1,900		1,800

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	fill in the blank 1	fill in the blank 2	fill in the blank 3
Monthly payroll	fill in the blank 4	fill in the blank 5	fill in the blank 6
Total	fill in the blank 7	fill in the blank 8	fill in the blank 9	fill in the blank 10
Number of purchase requisitions per year	fill in the blank 11	fill in the blank 12	fill in the blank 13	fill in the blank 14

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	$fill in the blank 15 per payroll check
Purchasing Department	$fill in the blank 16 per purchase requisition

	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	$fill in the blank 17	$fill in the blank 18	$fill in the blank 19	$fill in the blank 20
Purchasing Department	fill in the blank 21	fill in the blank 22	fill in the blank 23	fill in the blank 24
Total	$fill in the blank 25	$fill in the blank 26	$fill in the blank 27

c. Residential's service department charge is

higherlower

than the other two divisions because Residential is a

heavylight

user of service department services. Residential has many employees on a weekly payroll, which translates into a

largersmaller

number of payroll transactions.