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ervice Department Charges In divisional income statements prepared for Mills Construction Company, the Payroll Department costs...

ervice Department Charges

In divisional income statements prepared for Mills Construction Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $41,144, and the Purchasing Department had expenses of $17,690 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

Residential Commercial Government
Contract
Sales $ 370,000 $ 490,000 $ 1,125,000
Number of employees:
Weekly payroll (52 weeks per year) 235 65 70
Monthly payroll 34 45 32
Number of purchase
requisitions per year 2,600 1,800 1,700

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
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 charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. If required, round your answers to two decimal places. Do not round your interim calculations, round your answers to two decimal places, if required.

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 charge is higher than the other two divisions because Residential is a heavy user of service department services. Residential has many employees on a weekly payroll, which translates into a larger number of check-issuing transactions.

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Answer #1

c). Residential’s service department charge is higher than the other two divisionsbecause Residential is a heavy user of service department services. Residen-tial has many employees on a weekly payroll, which translates into a largernumber of check-issuing transactions. This may be because residential jobsare less productive per labor hour, compared to larger commercial and high-way jobs. Additionally, Residential uses purchasing services significantlymore than the other two divisions. This may be because the division hasmany different smaller jobs requiring frequent purchase transactions.

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