In divisional income statements prepared for Mills Construction Company, the Pay
ID: 2572809 • Letter: I
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 $68,192, and the Purchasing Department had expenses of $25,370 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 SelecthigherlowerItem 28 than the other two divisions because Residential is a SelectheavylightItem 29 user of service department services. Residential has many employees on a weekly payroll, which translates into a SelectlargersmallerItem 30 number of check-issuing transactions.
Residential Commercial GovernmentContract Sales $ 530,000 $ 703,000 $ 1,614,000 Number of employees: Weekly payroll (52 weeks per year) 180 60 65 Monthly payroll 30 41 28 Number of purchase requisitions per year 1,800 1,300 1,200
Explanation / Answer
Residenial Commercial Govt Contract Total Number of payroll checks Weekly payroll 9360 3120 3380 15860 Monthly Payroll 360 492 336 1188 Total 9720 3612 3716 17048 Number of purchase requisitions 1800 1300 1200 4300 Req b: Service Department charge rate Payroll department = Total expense of Payroll / Total Payroll Checks =(68192/17048) = $4.00per check Purchasing department= Total expense of deptt/ Number of requisitions =(25370/4300) = $ 5.90 per requisition Residenial Commercial Govt Contract Total Service department charges Payroll department($ 4per check) 38880 14448 14864 68192 Purchasing Department (@5.90 per requisition) 10620 7670 7080 25370 Total 49500 22118 21944 93562 ReqC: Residential department is HIGHER than other two division because residential is HEAVY user of service department services. Residential has many employees on a wekly payroll, which translates in to a LARGER number of check issuing transactions.
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