Question

In divisional income statements prepared for Lemons Company, the Payroll Department costs are allocated to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are allocated on the basis of the number of purchase requisitions. The Payroll Department had costs of $62,928, and the Purchasing Department had expenses of $29,480 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

Weekly payroll (52 weeks per year) 400 250 150
Monthly payroll 80 30 10
Number of purchase requisitions per year 7,500 3,000 2,000

Required:
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. Residential's service department charge is _______ than the other two divisions because Residential is a user of service department services. Residential has many employees on a weekly payroll, which translates into a ________ number of payroll transactions.

Answer 1

Lemons Company

a. Total amount of payroll checks = 920

amount of purchase requisitions = 12,500

b-a Residential Commercial Government Total

Payroll $32,832 $19,152 $10,944 $62,928

b-b Purchasing

Costs $17,688 $4,717 $7,075 $29,480

c. Residential's service department charge is __higher__ than the other two divisions because Residential is a user of service department services. Residential has many employees on a weekly payroll, which translates into a __higher__ number of payroll transactions.

Step-by-step explanation:

a) Data and Calculations:

Cost of the Payroll Department = $62,928

Cost of the Purchasing Department = $29,480

Residential Commercial Government Total

Contract

Sales $2,000,000 $3,250,000 $2,900,000 $8,150,000

Weekly payroll

(52 weeks per year) 400 250 150 800

Monthly payroll 80 30 10 120

Total 480 280 160 920

Number of purchase

requisitions per year 7,500 3,000 2,000 12,500

a. Total amount of payroll checks = 920 (800 + 120)

Total amount of purchase requisitions = 12,500

b-a Residential Commercial Government Total

Payroll $32,832 $19,152 $10,944 $62,928

(480/920 * $62,928) (280/920 * $62,928) (160/920 * $62,928)

b-b Purchasing

Costs $17,688 $4,717 $7,075 $29,480

(7,500/12,500 * $29,480) (2,000/12,500 * $29,480) (3,000/12,500 * $29,480)

Total $50,520 $23,869 $18,019 $92,408

Percentage 54.7% 25.8% 19.5% 100%