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 of purchase requisitions. The Payroll Department had expenses of $32,392, and the Purchasing Department had expenses of $12,470 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Residential Commercial Government Contract Sales $ 261,000 $ 345,000 $ 793,000 Number of employees: Weekly payroll (52 weeks per year) 125 80 85 Monthly payroll 28 39 26 Number of purchase requisitions per year 1,800 1,300 1,200 a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division. Residential Commercial Government Contract Total Number of payroll checks: Weekly payroll Monthly payroll Total Number of purchase requisitions per year: 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. Service department charge rates: Payroll Department $ per check Purchasing Department $ per requisition Residential Commercial Government Contract Total Service department charges: Payroll Department $ $ $ $ Purchasing Department $ $ $ $ Total $ $ $ c. Residential's service department charge is Selecthigherlower than the other two divisions because Residential is a Selectheavylight user of service department services. Residential has many employees on a weekly payroll, which translates into a Selectlargersmaller number of check-issuing transactions. Check My Work (2 remaining) Icon Key Icon Key Previous Question 4 of 11 Next Exercise 24-5 (Algorithmic)

Explanation / Answer

Answer Notes showing allocation of Indirect cost to various Activities 1) The Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks Residential Contracts Commercial Contracts Government Contracts Total Number of payroll checks - Monthly 28 39 26 93 - Weekly 125 80 85 290 Grand Total 153 119 111 383 Payroll cost per payroll check= Payroll Cost Total payroll checks = 32392 383 = 84.57 2) The Purchasing Department costs are charged back on the basis of the number of purchase requisitions Purchasing cost per purchase requisition= Purchasing Cost Total purchase requisitons = 12470 =1800+1300+1200 = 2.90 Statement showing per unit of product cost Particulars Residential Contracts Commercial Contracts Government Contracts Total REVENUE Sales 261000 345000 793000 1399000 COSTS Payroll cost 12939.89 10064.36 9387.76 32392 Payroll checks 153 119 111 Purchasing Cost 5220 3770 3480 12470 Purchase Requisions 1800 1300 1200 Total Cost 18160 13834 12868 44862 GROSS MARGIN 242840 331166 780132 1354138

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