In divisional income statements prepared for Mills Construction Company, the Pay

Question

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 purchase requisitions. The Payroll Department had expenses of $69,168, and the Purchasing Department had expenses of $28,160 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division. 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. Residential' s service department charge is than the other two divisions because Residential is a user of service department services. Residential has many employees on a weekly payroll, which translates into a number of check

Explanation / Answer

Answer (a)

Answer (b)

Service department charges rate

Pay roll department $ 128.57 per check   

Purchasing department $ 4.40 per requistion

Payroll department cost/ total employee = 69168/538 = 128.57

Purchasing department cost/total requisiton = 28160/6400 = 4.40

Answer (c) Residential's service department charge is more than the other two division because Residential is a more user of service department services . Residential has many employee on a weekly payroll, which translate into more number of check.

Resideintial Commercial Government contract Total No. of Payroll checks Weekly pay roll 250 80 85 Monthly pay roll 38 49 36 Total 288 129 121 538 No. of purchase requsition per year 2700 1900 1800 6400

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