Figure 7-1
Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2016 for its three departments:

-Refer to Figure 7-1. How much of the indirect advertising costs will be allocated to the Sportswear Department if newspaper ad space is the activity driver?

Question

Figure 7-1
Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2016 for its three departments:
 
-Refer to Figure 7-1. How much of the indirect advertising costs will be allocated to the Sportswear Department if newspaper ad space is the activity driver?

Quizplus · Accepted Answer

To allocate the indirect advertising costs to the departments, we need to calculate the cost allocation rate using the activity driver (newspaper ad space) and the total cost. 
Cost allocation rate = Indirect advertising costs / Newspaper ad space = $6,000 / 12,000 inches = $0.50 per inch 
Then, we multiply the cost allocation rate by the activity usage for each department to allocate the costs. 
For the Sportswear Department: $0.50 x 7,440 inches = $3,720 
Therefore, the answer is C, $3,720 allocated to the Sportswear Department.

Figure 7-1 Luxurious Department Store Incurred $6,000 of Indirect Advertising Costs for Costs