In divisional income statements prepared for Demopolis Company, the Payroll Depa
ID: 2534892 • Letter: I
Question
In divisional income statements prepared for Demopolis 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 $64,560, and the Purchasing Department had expenses of $40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:
Residential
Commercial
Government Contract
Sales
$2,000,000
$3,250,000
$2,900,000
Number of employees:
Weekly payroll (52 weeks per year)
400
250
150
Monthly payroll
80
30
10
Number of purchase requisitions per year
7,500
3,000
2,000
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. Do not round interim calculations. Round your answers to two decimal places.
Service department charge rates:
Payroll Department
$ per payroll check
Purchasing Department
$ per purchase requisition
Residential
Commercial
Government Contract
Total
Service department charges:
Payroll Department
$
$
$
$
Purchasing Department
Total
$
$
$
Residential
Commercial
Government Contract
Sales
$2,000,000
$3,250,000
$2,900,000
Number of employees:
Weekly payroll (52 weeks per year)
400
250
150
Monthly payroll
80
30
10
Number of purchase requisitions per year
7,500
3,000
2,000
Explanation / Answer
Solution
Demopolis Company
Residential
Commercial
Government Contract
Total
Number of payroll checks:
Weekly payroll
20,800
13,000
7,800
41,600
Monthly payroll
960
360
120
1,440
Total
21,760
13,360
7920
43,040
Number of purchase requisitions per year
7,500
3,000
2,000
12,500
The number of payroll checks processed per year is determined as follows,
For instance, Weekly payroll for Residential = 400 x 52 weeks = 20,800
Commercial = 250 x 52 = 13,000
Government contract = 150 x 52 = 7,800
Monthly payroll –
Residential – 80 x 12 months = 960
Commercial – 30 x 12 = 360
Government contract – 10 x 12 = 120
payroll department charges
$64,560/43,040 = $1.50
Purchase department charges
$40,000/12,500 = $3.20
Residential
Commercial
Government Contract
Total
Service Department Charges:
Payroll Department
$32,640
$20,040
$11,880
$64,560
Purchasing Department
$24,000
$9,600
$6,400
$40,000
Total
$56,640
$29,640
$18,280
$104,560
The charges are allocated as follows,
Payroll department,
Residential = $1.5 x 21,760 = $32,640
Commercial = $1.50 x 13,360 = 20,040
Government contract = $1.5 x 7,920 = 11,880
Purchasing department charges –
Residential = $3.20 x 7,500 = $24,000
Commercial = $3.20 x 3,000 = $9,600
Government contract = $3.20 x 2,000 = $6,400
Residential
Commercial
Government Contract
Total
Number of payroll checks:
Weekly payroll
20,800
13,000
7,800
41,600
Monthly payroll
960
360
120
1,440
Total
21,760
13,360
7920
43,040
Number of purchase requisitions per year
7,500
3,000
2,000
12,500
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