Animer Inc. provides the following information.
Corporate advertising costs = $800,000
Division A - $4,500,000
Division B - $7,500,000
Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues.
-What is the allocated corporate costs for Division B?
A) $700,000
B) $200,000
C) $500,000
D) $300,000

Question

Quizplus · Accepted Answer

The allocation of corporate costs to Division B will be based on the percentage of revenue that Division B generates compared to the total revenue generated by the company. Division B generates 25% of the total revenue ($7.5 million / $30 million), so it will be allocated 25% of the corporate advertising costs: 
$800,000 x 25% = $200,000 
However, the question states that customers with higher revenues benefited more from the advertising costs. Since Division B has a higher revenue than Division A, it can be assumed that they received more benefit from the corporate advertising. Thus, it is reasonable to adjust the allocation by giving Division B a slightly higher percentage of the corporate advertising costs. A reasonable adjustment would be to allocate 60% of the costs to Division A and 40% of the costs to Division B (instead of 75% and 25% based on revenue share). Using this adjustment: 
Division A allocated costs = $800,000 x 60% = $480,000 
Division B allocated costs = $800,000 x 40% = $320,000 
The question only asks for the allocated costs for Division B, so the answer is $320,000, or choice C.

Animer Inc. Provides the Following Information