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 $33,056, and the Purchasing Department had expenses of $17,690 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 $370,000 $490,000 $1,125,000 Number of employees: Weekly payroll (52 weeks per year) 120 85 90 Monthly payroll 30 41 28 Number of purchase requisitions per year 2,600 1,800 1,700

Explanation / Answer

a)

b)

c)

Residential's service department charge is more than the other two divisions because Residential is a heavy user of service department services. Residential has many employees on a weekly payroll, which translates into a 6240 number of check-issuing transactions.

Residential Commercial Government Total Number of payroll checks: Weekly Payroll 6,240 (120*52) 4,420 (85*52) 4,680 (90*52) 15,340 Monthly payroll 360 (30*12) 492 (41*12) 336 (28*12) 1,188 Total 6,600 4,912 5,016 16,528 No. of purchase requisitions per year 2,600 1,800 1,700 6,100

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