In divisional income statements prepared for LeFevre Company, the Payroll Depart

Question

In divisional income statements prepared for LeFevre 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 $38,168, and the Purchasing Department had expenses of $15,660 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 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-issuing transactions.

Residential Commercial Government
Contract Sales $327,000 $434,000 $996,000 Number of employees: Weekly payroll (52 weeks per year) 165 85 90 Monthly payroll 36 47 34 Number of purchase requisitions per year 2,300 1,600 1,500

Explanation / Answer

a)

b) The service department charge rates:

Payroll and purchasing costs charged to the divisions:

c) Residentials service department charge is higher than the other two divisions becuase residential is avid user of service department services. Residential has many employees on a weekyl payroll which translates into a higher number of check issuing transactions.

Residential Commercial Government Total Number of payroll checks: Weekly payroll                 8,580                 4,420                 4,680               17,680 Monthly payroll                     432                     564                     408                 1,404 Total                 9,012                 4,984                 5,088               19,084 Number of purchase requisitions per year                 2,300                 1,600                 1,500                 5,400

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