Question

Management of Wee Ones (WO), an operator of day-care facilities, wants the company's profit to be subdivided by center. The firm's accountant has provided the following data: Center Budgeted Revenue Actual Revenue Budgeted Direct Costs Actual Direct Costs Downtown $ 320,000 $ 340,200 $ 300,000 $ 300,000 Irvine 560,000 534,600 510,000 440,000 H. Beach 720,000 745,200 690,000 740,000 Totals $ 1,600,000 $ 1,620,000 $ 1,500,000 $ 1,480,000 WO's advertising, which is handled by the home office, is not reflected in the preceding figures and amounted to $60,000. Assume that management used the allocation base that is most influenced by advertising effort and consistent with sound managerial accounting practices. How much advertising would be allocated to the Irvine center

Answer 1

Answer: $19,800

Explanation:

Actual Revenue would be the most appropriate base to use because it is the most influenced by advertising effort and sound managerial practices.

Total actual revenue from all centers is $1,620,000.

Actual revenue for Irvine center is $534,600.

Advertising expenses to Irvine would be:

= Advertising cost * Actual revenue for Irvine / Total actual revenue for all centers

= 60,000 * 534,600 / 1,620,000

= $19,800