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A retail store has three departments, A, B, and C, each of which has four full-time employees
A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were:
Department A: $356,250
Department B: 641,250
Department C: 427,500
How much advertising expense should be allocated to each department?
Expert Solution
PFA
A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were:
How much advertising expense should be allocated to each department?
Given the limited information in the question, we will use a percentage-of-revenue method to allocate the advertising expense.
Dept Sales proportion Ad. Exp
A 356,250 0.25 22,500
B 641,250 0.45 40,500
C 427,500 0.30 27,000
Total 1,425,000 1.00 90,000
In the table, the proportion is calculated by the department's sales divided by the total sales. Then we multiply the total advertising expense by the proportion to obtain the advertising expense allocated to each department (the last column).
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