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 a year) 410 210 160 Monthly Payroll 75 35 15 Number of purchase requisitions per year 7,400 3,000 2,000 Determine the total dollar amount of payroll checks and purchase requisitions processed per year by the company and each division. Using the activity base information in (a), determine the annual dollar amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5E: Service department charges In divisional income statements prepared for Demopolis Company, the...

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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 a year)	410	210	160
Monthly Payroll	75	35	15
Number of purchase requisitions per year	7,400	3,000	2,000

Determine the total dollar amount of payroll checks and purchase requisitions processed per year by the company and each division.
Using the activity base information in (a), determine the annual dollar amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services.
Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?

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