estimated to have 800 hours of excess capacity. per audit engagement, and $15,750 per tax engagement. The company has its own Payroll Office, which provides payroll services to both divisions and will allocate its total expenses to the two divisions as service department charges. Mr. Bailey would like you to start by analyzing the Payroll Office expenses, and allocating the total expenses to each division. He has decided to use the number of payroll checks as the activity base for the allocation. Fill in the following blanks, allocating the total expense for the Payroll Office to each of the two divisions. Payroll Charge Rate per payroll check Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y1 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a market transfer price. The divisional managers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Tax Division would charge the Audit Division the market rate of $100.00 per hour for the additional hours required, selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees. Complete the following Income Statements. Enter all amounts as positive numbers. If there is no amount or an amount is zero, enter "0". \begin{tabular}{|l|l|r|r|} \hline 2 & Fees earned: & \\ \hline 3 & Audit fees (16 engagements) & $1,200,000.00 & \\ \hline 4 & Tax fees (45 engagements) & & $1,200,000.00 \\ \hline 5 & Transfer-pricing fees & $708,750.00 & 708,750.00 \\ \hline 6 & Expenses: & 80,000.00 & 80,000.00 \\ \hline 7 & Variable: & \\ \hline 8 & Audit hours provided by Audit Division & \\ \hline 9 & Tax hours provided by Tax Division & 216,000.00 & \\ \hline 10 & Excess capacity hours paid to salaried staff & \\ \hline 11 & Audit hours provided by Tax Division & & 216,000.00 \\ \hline 12 & Fixed expenses & 283,500.00 & \\ \hline \end{tabular} 13 Income from operations before service department charges 14 Service department charges for payroll 15 Income from operations Negotiated Transfer Price Shaded cells h 13 Income from operations before service department charges Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y1 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a cost transfer price. The divisional managers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would pay the Tax Division's internal hourly rate of $60.00 per hour for the additional hours required, with the Tax Division selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees. Complete the following Income Statements. Enter all amounts as positive numbers. If there is no amount or an amount is zero, enter "0". Fees earned: 3 Audit fees (16 engagements) 4 Tax fees (45 engagements) Transfer-pricing fees Expenses: 7 Variable: 8 Audit hours provided by Audit Division Tax hours provided by Tax Division Excess capacity hours paid to salaried staff 11 Audit hours provided by Tax Division 12 Fixed expenses 13 Income from operations before service department charges Service department charges for payroll