Question

A company incurs advertising costs of $10,000. The company's three selling departments have the following sales: Department 1—$10,000; Department 2—$30,000; Department 3—$40,000. Advertising is allocated based on percent of sales. The amount of advertising allocated to Department 3 will be $

Answer 1

Total sales:

Department 1 $10,000

Department 2 $30,000

Department 3 $40,000

Total sales $80,000

Total advertising cost = $10,000

The amount of advertisement allocated to department 3 = $40,000/$80,000 x $10,000 = $5,000

Step-by-step explanation:

The total advertising cost incurred was $10,000 while the total sales for the three departments was $80,000. Since the advertising cost is expected to be allocated on the basis of percentage of sales, thus, the advertising cost to be allocated to department 3 will be $40,000/$80,000 x $10,000, which corresponds to $5,000.