In divisional income statements prepared for Mills construction Co, the Payroll
ID: 2435928 • Letter: I
Question
In divisional income statements prepared for Mills construction Co, 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 $45,900, and the Purchasing Department had expenses of $22,000 for the year. The following annual data for Residential, Commerical, and Government Contract Divisions were obtained from corporate records:
Residential Commercial Govt. Contract
Sales $460,000 $610,000 1,400,000
Number of Employees:
Weekly payroll (52 weeks per year) 125 70 75
Monthly payroll 32 43 30
Number of Purchase requisitions per year 2,100 1,500 1,400
a. Determine the total amount of payroll checks and purchase requisitions processed per year by 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.
Explanation / Answer
a. Determine the total amount of payroll checks and purchase requisitions processed per year by each division.
Govt.
Resid. Comm. Contract Total
Number of Payroll checks
Weekly payroll X 52 6,500 3,640 3,900
Monthly payroll x 12 384 516 360
Total 6,884 4,156 4,260 15,300
Number of purchase
requisitions per year 2,100 1,500 1,400 5,000
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.
Service department chargeable rates
================================
Payroll department $45,900 / 15,300 checks = $3 per check
Purchasing department $22,000 / 5,000 checks = $4.40 per requisition
Govt.
Resid. Comm. Contract Total
Service department charges
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Payroll department $20,6521 $12,4682 $12,7803 $45,900
Purchasing department $9,2404 $6,6005 $6,1606 $22,000
_________________________________________________________
16,884 x $3.00 = $20,652 42,100 x $4.40 = $9,240
24,156 x $3.00 = $12,468 51,500 x $4.40 = $6,600
34,260 x $3.00 = $12,780 61,400 x $4.40 = $6,160
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