Question

Macee Department Store has three departments, and it conducts advertising campaigns that benefit all departments. Advertising costs are $100,000 this year, and departmental sales for this year follow. Department Sales Department 1 $ 220,000 Department 2 400,000 Department 3 180,000 How much advertising cost is allocated to each department if the allocation is based on departmental sales?

Answer 1

Answer:

Department 1 - $27,500

Department 2 - $50,000

Department 3 - $22,500

Explanation:

The cost to be allocated to each department is proportional to the sales generated by each department. In other words, as the sales increases so does the cost in a direct proportion manner.

Total sales = $220,000 + $400,000 + $180,000

= $800,000

Advertising cost allocated to

Department 1

= (220,000/800,000) * $100,000

= $27,500

Department 2

= (400,000/800,000) * $100,000

= $50,000

Department 3

= (180,000/800,000) * $100,000

= $22,500