Service Department Charges In divisional income statements prepared for Mills Co

Question

Service Department Charges

In divisional income statements prepared for Mills 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 $33,720, 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:

a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.

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.

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

Residential Commercial Government
Contract Sales $ 406,000 $ 538,000 $ 1,236,000 Number of employees: Weekly payroll (52 weeks per year) 175 60 65 Monthly payroll 32 43 30 Number of purchase requisitions per year 2,800 2,000 1,900

Explanation / Answer

a Residential Commercial Govt Contract Total for the company No of Payroll Checks Weekly payroll (52 weeks per year) 175 60 65 No of weekly payroll checks                9,100               3,120                 3,380          15,600 Monthly payroll 32 43 30 No of Monthly payroll checks 384 516 360             1,260 Total no of Payroll checks                9,484               3,636                 3,740          16,860 Number of purchase Requisitions requisitions per year 2,800 2,000 1,900 6,700 b Department Total Cost Charge back basis Qty Cost Per basis unit Payroll dept                                  33,720             16,860 $            2.00 Per pay check Purchasse dept.                                  19,430               6,700 $            2.90 Per purchase requisition Details Residential Commercial Govt Contract Total for the company No of Paychecks                                     9,484               3,636              3,740              16,860 Cost per pay check $                                   2.00 $             2.00 $            2.00 $              2.00 Cost of Payroll dept   $                        18,968.00 $     7,272.00 $    7,480.00 $    33,720.00 No of purchase requisitions                                     2,800               2,000              1,900                6,700 Cost per purchase requisition $                                   2.90 $             2.90 $            2.90 $              2.90 Cost of Purchase dept. $                          8,120.00 $     5,800.00 $    5,510.00 $    19,430.00 Total Cost Allocated $                        27,088.00 $   13,072.00 $ 12,990.00 $    53,150.00 c Residential's service department charge is higher than the other two divisions because residential has many employee on weekly payroll which translates into a larger no of check issuing transactions.

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