Question

​GEICO, the​ number-two auto insurer with ​$15 billion in revenue last​ year, spent ​$0.8 billion on advertising that year and plans to continue spending the same percentage of sales on advertising next year. The average​ advertising-to-sales ratio for the insurance industry is 0.3 percent of sales. If GEICO projects ​$19 billion in sales next​ year, using the​ percentage-of-sales method of advertising​ budgeting, how much will the company budget for advertising if basing it on projected​ sales?

Answer 1

$1.01 billion

Step-by-step explanation:

The computation of the amount for advertising based on projected sales is shown below:

= Advertising expense ÷ sales × projected sales in next year

= $0.8 billion ÷ $15 billion × $19 billion

= $1.01 billion

First we find out the advertise to sales ratio after than we multiplied it with the projected sales in next year in order to find out the advertising based on projected sales