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Service department charges In divisional income statements prepared for LeFevre 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 $575,400 and the Purchasing Department had expenses of $42,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Residential Commercial Government Contract Sales. $1,000,000 $1,600,000 $3,200,000 Number of employees: Weekly payroll (52 weeks per year) 300 150 200 Monthly payroll 75 160 90 Number of purchase requisitions per year 4,000 3,500 3,000 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. c. 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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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 24, Problem 24.5EX
Textbook Problem

Service department charges

 In divisional income statements prepared for LeFevre 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 $575,400 and the Purchasing Department had expenses of $42,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

  Residential Commercial Government Contract
Sales. $1,000,000 $1,600,000 $3,200,000
Number of employees:      
Weekly payroll (52 weeks per year) 300 150 200
Monthly payroll 75 160 90
Number of purchase requisitions per year 4,000 3,500 3,000

 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.

 c.    Why does the Residential Division have a larger service department charge than the other two divisions even though its sales are lower?

Expert Solution

(a)

To determine

Service department charges: These are the indirect expenses incurred by profit center. These are charged for the services received by the department or division, based on the activity base of the service department.

To determine: The total number of payroll checks and purchase requisitions processed by R Division, C Division, GC Division, and on the whole by Company L

Explanation of Solution

Determine the total number of payroll checks and purchase requisitions processed by R Division, C Division, and on the whole by Company L.

Particulars R Division C Division GC Division Total Company
Number of employees:        
     On weekly payroll 15,600 7,800 10,400  
     On monthly payroll 900 1,920 1,080  
            Total payroll checks 16,500 9,720 11,480 37,700
Number of purchase requisitions 4,000 3,500 3,000 10,500

Table (1)

Working Notes:

Compute number of payroll checks issued weekly, for R Division.

Weekly payroll checks in a year} = {Number of weekly payroll × Number of weeks in a year}= 300 payroll checks × 52 weeks=15,600 payroll checks

Compute number of payroll checks issued weekly, for C Division.

Weekly payroll checks in a year} = {Number of weekly payroll × Number of weeks in a year}= 150 payroll checks × 52 weeks=7,800 payroll checks

Compute number of payroll checks issued weekly, for GC Division

Expert Solution

(b)

To determine
The payroll and purchasing service charges to be charged for R Division, C Division, and GC Division

Expert Solution

(c)

To determine

To explain: The reasons for larger service department charges of R Division, comparatively, despite the lower sales revenue

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Chapter 24 Solutions

Accounting
Show all chapter solutions
Ch. 24 - Budgetary performance for cost center Caroline...Ch. 24 - Budgetary performance for cost center Conley...Ch. 24 - Service department charges The centralized...Ch. 24 - Service department charges The centralized...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Profit margin, investment turnover, and ROI Cash...Ch. 24 - Profit margin, investment turnover and ROI Briggs...Ch. 24 - Residual income The Consumer Division of Galena...Ch. 24 - Residual income The Commercial Division of Herring...Ch. 24 - Transfer pricing The materials used by the North...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - Divisional income statements The following data...Ch. 24 - Service department charges and activity bases For...Ch. 24 - Activity bases for service department charges For...Ch. 24 - Service department charges In divisional income...Ch. 24 - Service department charges and activity bases...Ch. 24 - Divisional income statements with service...Ch. 24 - Corrections to service department charges for a...Ch. 24 - Profit center responsibility reporting Glades...Ch. 24 - Return on investment The income from operations...Ch. 24 - Residual income Based on the data in Exercise...Ch. 24 - Determining missing items in return computation...Ch. 24 - Profit margin, investment turnover, and return on...Ch. 24 - Return on investment The Walt Disney Company has...Ch. 24 - Determining missing items in return and residual...Ch. 24 - Determining missing items from computations Data...Ch. 24 - Return on investment, residual income for a...Ch. 24 - Balanced scorecard for a service company American...Ch. 24 - Building a balanced scorecard Hit-n-Kun Inc. owns...Ch. 24 - Decision on transfer pricing Materials used by the...Ch. 24 - Decision on transfer pricing Based on T_Kong...Ch. 24 - Budget performance report for a cost center...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Garcon Inc. manufactures...Ch. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Exoplex Industries Inc. is a...Ch. 24 - Ethics in Action Sembotix Company has several...Ch. 24 - Communication The Norsk Division of Gridiron...Ch. 24 - Service department charges The Customer Service...Ch. 24 - Evaluating divisional performance The three...Ch. 24 - Evaluating division performance Last Resort...

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