In divisional income statements prepared for Franklin Electrical 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 $44,010, and the Purchasing Department had expenses of $18,720 for the year. The following annual data for Residential, Commercial, and Government Contract Divisions were obtained from corporate records:
Â
Government
Residential
Commercial
Contract
Sales
$420,000
$500,000
$1,800,000
Number of employees:
Weekly payroll (52 weeks per year)
144
72
108
Monthly payroll
25
20
18
Number of purchase requisitions per year
1,800
1,530
1,350
a. Determine the total amount of payroll checks and purchase requisitions processed per year by 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?
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