Question

Colin McKinney, director of marketing for Greenwald Industrial Products, complains to his advertising director that the continuing slump in orders has apparently been perpetuated by the firm's failure to have the necessary advertising expenditures. Based on this information, Greenwald is most likely using the ____ approach to determine its advertising expenditures.

Answer 1

Percent of sales.

Step-by-step explanation:

Percentage of sales approach leads to a peculiar selection. It increases advertising expenditures when business is good, and reduces them when sales are poor.

There are two steps to do the budgeting:

Step 1: past advertising dollars/past sales = % of sales.

Step 2: % of sales X next year’s sales forecast = new advertising budget.

In most cases, it would be reasonable to expect that the reverse should be true if we are to accept the basic definitions of advertising and its sales values.

It is based on the erroneous assumption that "sales cause advertising" whereas the reality is just the opposite (advertising causes sales) .