FINANCIAL ACCOUNTING
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Author: Libby
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Service Department Charges
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 $45,336, and the Purchasing Department had expenses of $23,320 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:
Residential |
Commercial |
Government Contract |
|||||
| Sales | $ 487,000 | $ 646,000 | $ 1,483,000 | ||||
| Number of employees: | |||||||
| Weekly payroll (52 weeks per year) | 140 | 60 | 65 | ||||
| Monthly payroll | 34 | 45 | 32 | ||||
| Number of purchase | |||||||
| requisitions per year | 2,200 | 1,600 | 1,500 |
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 | fill in the blank 1 | fill in the blank 2 | fill in the blank 3 | |
| Monthly payroll | fill in the blank 4 | fill in the blank 5 | fill in the blank 6 | |
| Total | fill in the blank 7 | fill in the blank 8 | fill in the blank 9 | fill in the blank 10 |
| Number of purchase requisitions per year | fill in the blank 11 | fill in the blank 12 | fill in the blank 13 | fill in the blank 14 |
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 your interim calculations, round your answers to two decimal places, if required.
| Service department charge rates: | |
| Payroll Department | $fill in the blank 15 per payroll check |
| Purchasing Department | $fill in the blank 16 per purchase requisition |
| Residential | Commercial | Government Contract | Total | |
| Service department charges: | ||||
| Payroll Department | $fill in the blank 17 | $fill in the blank 18 | $fill in the blank 19 | $fill in the blank 20 |
| Purchasing Department | fill in the blank 21 | fill in the blank 22 | fill in the blank 23 | fill in the blank 24 |
| Total | $fill in the blank 25 | $fill in the blank 26 | $fill in the blank 27 |
c. Residential's service department charge is higher 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 larger number of payroll transactions.
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