Question

Service Department Charges

In divisional income statements prepared for Mills ConstructionCompany, the Payroll Department costs are charged back to userdivisions on the basis of the number of payroll checks, and thePurchasing Department costs are charged back on the basis of thenumber of purchase requisitions. The Payroll Department hadexpenses of $34,008, and the Purchasing Department had expenses of$15,370 for the year. The following annual data for Residential,Commercial, and Government Contract divisions were obtained fromcorporate records:

		Residential		Commercial		Government Contract
Sales		$ 321,000		$ 426,000		$ 978,000
Number of employees:
	Weekly payroll (52 weeks per year)	175		60		65
	Monthly payroll	36		47		34
Number of purchase
	requisitions per year	2,200		1,600		1,500

a. Determine the total amount of payroll checksand purchase requisitions processed per year by the company andeach division.

	Residential	Commercial	Government Contract	Total
Number of payroll checks:
Weekly payroll
Monthly payroll
Total
Number of purchase requisitions per year:

b. Using the activity base information in (a),determine the annual amount of payroll and purchasing costs chargedback to the Residential, Commercial, and Government Contractdivisions from payroll and purchasing services. If required, roundyour answers to two decimal places. Do not round your interimcalculations, round your answers to two decimal places, ifrequired.

Service department charge rates:
Payroll Department	$ per check
Purchasing Department	$ per requisition

	Residential	Commercial	Government Contract	Total
Service department charges:
Payroll Department	$	$	$	$
Purchasing Department	$	$	$	$
Total	$	$	$

c. Residential's service department chargeis

than the other two divisions because Residential is a user ofservice department services. Residential has many employees on aweekly payroll, which translates into a number of check-issuingtransactions.