using by group processing First. and Last - sas

Question

I just start learning sas and would like some help with understanding the following chunk of code. The following program computes the annual payroll by department.
proc sort data = company.usa out=work.temp;
by dept;
run;
data company.budget(keep=dept payroll);
set work.temp;
by dept;
if wagecat ='S' then yearly = wagrate *12;
else if wagecat = 'H' then yearly = wagerate *2000;
if first.dept then payroll=0;
payroll+yearly;
if last.dept;
run;
Questions:
What does out = work.temp do in the first line of this code?
I understand the data step created 2 temporary variables for each by variable (first.varibale/last.variable) and the values are either 1 or 0, but what does first.dept and last.dept exactly do here in the code?
Why do we need payroll=0 after first.dept in the second to the last line?

Answer 1

This code takes the data for salaries and calculates the payroll amount for each department for a year, assuming salary is the same for all 12 months and that an hourly worker works 2000 hours.
It creates a copy of the data set which is sorted and stored in the work library. RTM.
From the docs
OUT= SAS-data-set
names the output data set. If SAS-data-set does not exist, then PROC SORT creates it.
CAUTION:
Use care when you use PROC SORT without OUT=.
Without the OUT= option, PROC SORT replaces the original data set with the sorted observations when the procedure executes without errors.
Default Without OUT=, PROC SORT overwrites the original data set.
Tips With in-database sorts, the output data set cannot refer to the input table on the DBMS.
You can use data set options with OUT=.
See SAS Data Set Options: Reference
Example Sorting by the Values of Multiple Variables
First.DEPT is an indicator variable that indicates the first observation of a specific BY group. So when you encounter the first record for a department it is identified. Last.DEPT is the last record for that specific department. It means the next record would the first record for a different department.
It sets PAYROLL to 0 at the first of each record. Since you have if last.dept; that means that only the last record for each department is outputted. This code is not intuitive - it's a manual way to sum the wages for people in each department. The common way would be to use a summary procedure, such as MEANS/SUMMARY but I assume they were trying to avoid having two passes of the data. Though if you're not sorting it may be just as fast anyways.
Again, RTM here. The SAS documentation is quite thorough on these beginner topics.
Here's an alternative method that should generate the exact same results but is more intuitive IMO.
data temp;
set company.usa;
if wagecat='S' then factor=12; *salary in months;
else if wagecat='H' then factor=2000; *salary in hours;
run;
proc means data=temp noprint NWAY;
class dept;
var wagerate;
weight factor;
output out=company.budget sum(wagerate)=payroll;
run;