Adel Department Store incurred $8000 of indirect advertising costs for its operations. The following data were collected for its three departments:
How much of the indirect advertising costs would have been allocated to the Automotive Department if sales were the allocation base?
A) $1200
B) $1600
C) $2400
D) $8000

Question

Adel Department Store incurred $8000 of indirect advertising costs for its operations. The following data were collected for its three departments:
 How much of the indirect advertising costs would have been allocated to the Automotive Department if sales were the allocation base?
A) $1200 
B) $1600 
C) $2400 
D) $8000

Quizplus · Accepted Answer

To allocate the indirect advertising costs based on sales, we need to determine the percentage of total sales generated by the Automotive Department. Using the data provided, we can calculate this as:

Automotive Department sales / Total sales = 40000 / 100000 = 0.4

Therefore, the Automotive Department should be allocated 0.4 x $8000 = $3200 of indirect advertising costs. However, we are asked to allocate based on sales, not total costs. We know that total sales were $100000, so we can calculate:

Automotive Department sales / Total sales = x / 100000

Solving for x, we get:

x = 0.4 x 100000 = $40000

Therefore, the Automotive Department should be allocated 0.4 x $8000 = $3200 of indirect advertising costs, which is 3200 / 40000 x 100% = 8% of its sales. Applying this percentage to its actual sales of $30000, we get:

8% x $30000 = $2400

Adel Department Store Incurred $8000 of Indirect Advertising Costs for Its