Service Department Charges In divisional income statements prepared for Demopoli

Question

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 $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:

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. Do not round interim calculations. Round your answers to two decimal places.

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

Explanation / Answer

ReqA: Residenial Commercial Govt Contract Total Number of payroll checks Weekly payroll 20800 13000 7800 41600 Monthly Payroll 960 360 120 1440 Total 21760 13360 7920 43040 Number of purchase requisitions 7500 3000 2000 12500 Req b: Service Department charge rate Payroll department = Total expense of Payroll / Total Payroll Checks =(64560/43040) = $ 1.50 per check Purchasing department= Total expense of deptt/ Number of requisitions =(40,000 /12500) = $ 3.20 per requisition Residenial Commercial Govt Contract Total Service department charges Payroll department($1.50 per check) 32640 20040 11880 64560 Purchasing Department (@3.20 per requisition) 24000 9600 6400 40000 Total 56640 29640 18280 104560

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