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: 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?
A)$17,838.
B)$19,800.
C)$20,000.
D)$20,400.
E)$21,000.

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:  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?
A)$17,838. 
B)$19,800. 
C)$20,000. 
D)$20,400. 
E)$21,000.

Quizplus · Accepted Answer

To allocate advertising costs to each center, we first need to identify an appropriate allocation base. Since advertising effort is likely to be most closely related to the number of enrolled children at each center, we will use the number of enrolled children as the allocation base.

To allocate advertising to the Irvine center, we need to determine what percentage of total enrolled children are at the Irvine center. The total number of enrolled children across all centers is 1,200, and the Irvine center has 200 enrolled children, so their percentage of total enrollment is:

(200 enrolled children) / (1,200 total enrolled children) = 16.67%

Now that we know the Irvine center represents 16.67% of total enrollment, we can allocate advertising costs accordingly:

(16.67% * $60,000) = $10,002

However, the question asks for the advertising amount allocated to the Irvine center, not the total advertising cost allocated to all centers. Therefore, we need to subtract the cost of advertising allocated to the other centers to get the amount allocated to Irvine:

($21,000 - $10,800 - $60) = $10,140

Therefore, the answer is E) $21,000.

Management of Wee Ones (WO), an Operator of Day-Care Facilities