Question

Macee Department Store has three departments, and it conducts advertising campaigns that benefit all departments. Advertising costs are $106,000 this year, and departmental sales for this year follow. Department Sales 1 $ 212,500 2 416,500 3 221,000 How much advertising cost is allocated to each department if the allocation is based on departmental sales?

Answer 1

The allocation of advertising costs will be as follows,

Department 1 = $26500

Department 2 = $51940

Department 3 = $27560

Step-by-step explanation:

The advertising expense will be allocated on the weightage of sales basis to each department.

The weightage of sales can be calculated by dividing the individual department sales by the total sales of all the departments. The total sales for all the departments are,

Total sales = 212500 + 416500 + 221000 = $850000

The allocation of advertising costs will be as follows,

Department 1 = (212500/850000) * 106000 = $26500

Department 2 = (416500/850000) * 106000 = $51940

Department 3 = (221000/850000) * 106000 = $27560