Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 47

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 distribution, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $75,400, 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:

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