Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2018 for its three departments: $\begin{array}{lrrr}&\text { Sportswear } &\text { Lingerie} &\text { Appliance: }\
\text { Sales } & \$ 160,000 & \$ 120,000 & \$ 120,000 \
\text { Direct adverti sing costs } & \$ 7,000 & \$ 12,000 & \$ 3,000 \
\text { Newspaper ad space } & 62 \% & 20 \% & 18 \%
\end{array}$ How much of the indirect advertising costs will be allocated to the Lingerie Department if direct advertising costs is the activity driver? (Round to the nearest dollar if necessary)
A)$3,000
B)$3,273
C)$6,000
D)$12,000

Question

Quizplus · Accepted Answer

The indirect advertising costs are allocated based on the proportion of direct advertising costs each department incurs. The total direct advertising costs are $7,000 (Sportswear) + $12,000 (Lingerie) + $3,000 (Appliance) = $22,000. The Lingerie Department's share of the direct advertising costs is $12,000 out of $22,000, which is 12,000 / 22,000 = 54.545%. Therefore, the Lingerie Department's allocation of the $6,000 indirect advertising costs is 54.545% of $6,000, which is approximately $3,273.

Luxurious Department Store Incurred $6,000 of Indirect Advertising Costs for Its