Reference no: EM132717795

Problem - 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.

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.

c. Why does the Residential Division have a larger support department allocation than the other two divisions, even though its sales are lower?