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 Lingerie Department if direct advertising costs is the activity driver? (Round to the nearest dollar if necessary)

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 Lingerie Department if direct advertising costs is the activity driver? (Round to the nearest dollar if necessary)

Quizplus · Accepted Answer

To allocate the indirect advertising costs using direct advertising costs as the activity driver, we need to calculate the percentage of direct advertising costs for each department. 
Total direct advertising costs for all departments = $18,200 
Percentage of direct advertising costs for each department:
- Lingerie department: $5,000 / $18,200 = 27.47%
- Cosmetic department: $7,500 / $18,200 = 41.21%
- Jewelry department: $5,700 / $18,200 = 31.32%
Therefore, the amount of indirect advertising costs allocated to the Lingerie Department using direct advertising costs as the activity driver is: 
$6,000 x 27.47% = $1,648.20. Rounded to the nearest dollar, the answer is $3,273.

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