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 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. Residential Commercial Government Contract Total Number of payroll checks: Weekly payroll x 52 Monthly payroll x 12 Total Number of purchase requisitions per year 3,000 v 2,000 V b. Using the cost driver information in (a), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. Do not round interim calculations. Round your answers to two decimal places. Support department allocation rates: Payroll Department per distribution Purchasing Department per requisition Residential Commercial Government Contract Total Support department allocations: Payroll Department $ $4 Purchasing Department Total $ $4 c. Residential's support department allocations are higher v than the other two divisions because Residential is a heavy v user of support department services. Residential has many employees on a weekly payroll, which translates into a larger v number of payroll transactions.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Cost Department Allocations

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

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Cost Department Allocations
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 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.
Residential
Commercial
Government Contract
Total
Number of payroll checks:
Weekly payroll × 52
Monthly payroll x 12
Total
Number of purchase requisitions per year
3,000
2,000 V
b. Using the cost driver information in (a), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government
Contract divisions from payroll and purchasing services. Do not round interim calculations. Round your answers to two decimal places.
Support department allocation rates:
Payroll Department
per distribution
Purchasing Department
per requisition
Residential
Commercial
Government Contract
Total
Support department allocations:
Payroll Department
$
Purchasing Department
Total
c. Residential's support department allocations are higher v than the other two divisions because Residential is a heavy v
user of support department
services. Residential has many employees on a weekly payroll, which translates into a larger v
number of payroll transactions.

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