Patrick Payroll Services provides weekly payroll processing for a number of smal

Question

Patrick Payroll Services provides weekly payroll processing for a number of small businesses. Patrick Talbert, the company’s owner, has been using an activity-based costing system for several years. He used the following information in preparing this year’s budget.

Patrick is preparing a proposal for a prospective client, Nelly’s Nectar Bar. The client has 23 employees. What is the estimated cost of providing weekly payroll services to this client for the first year? (Round answers to 2 decimal places, e.g. 15.25.)

Activity Cost Pool Total Cost Cost Driver Expected Driver Volume Setting up new employees $ 80,000 Number of new employees 500 Processing weekly payroll $ 724,735 Number of paychecks printed 2,506,000 Weekly reporting $ 320,000 Number of clients 100 Annual tax reporting $ 251,200 Number of W-2s printed 62,800

Explanation / Answer

Estimated Cost of client expenses is prepared as under:

Cost Pool Activity Rate Cost Driver Expected Annual Cost for 1 client Remarks Setting up new employees 160 Number of new employees 3680 160*23 Processing weekly payroll 0.28919992 Number of paychecks printed 7247.35 25060*.29 Weekly reporting 3200 Number of clients 3200 3200*1 Annual tax reporting 4 Number of W-2s printed 2512 628*4

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