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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Service department charges
In divisional income statements prepared for Iguana 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 $42,750, and the Purchasing Department had expenses of $87,600 for the year. The following annual data for the 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 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.
c.Why does the Residential Division have a larger service department charge than the other two divisions?

To determine

(a)

Concept Introduction:

The service charges are those charges at which the services are provided to the party. The department service charges are those charges at which the services are provided to each department.

To compute:

The total amount of payroll checks and purchase requisitions processed per year.

Explanation

I.C. Co.

    ParticularsWeekly payrollWeeks per yearTotal payroll checks per year
    Residential  80  52  4,160
    Commercial  60  52  3,120
    Government  25  52  1,300
      8,580
    ParticularsMonthly payrollMonths per yearTotal payroll checks per year
    Residential  20  12  240
    Commercial  10  12  120
    Government  5  12</
To determine

(b)

Concept Introduction:

The service charges are those charges at which the services are provided to the party. The department service charges are those charges at which the services are provided to each department.

To compute:

The annual amount of payroll and purchasing costs charged back to the residential, commercial, and government contract division.

To determine

(c)

Concept Introduction:

The service charges are those charges at which the services are provided to the party. The department service charges are those charges at which the services are provided to each department.

The reason that residential division has a higher service department charge in comparison to others.

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