Homework: Chapter 15 Homework Score: 0 of 1 pt E15-26 (similar to) 3 of 4 (3 com

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Homework: Chapter 15 Homework Score: 0 of 1 pt E15-26 (similar to) 3 of 4 (3 complete) HW Score: 51.06%, 2.04 of 4 pts Question Help * Dan Dandy Auto Sales uses all types of media to advertise its products (television, radio, newspaper, and so on). At the end of 2013, the company president, Dan Dandridge, decided that all advertising costs would be incurred by corporate headquarters and allocated to each of the company's four sales locations based on number of vehicles sold. Dan was confident that his corporate purchasing manager could negotiate better advertising contracts on a corporate-wide basis than each of the sales managers could on their own. Dandridge bucdgeted total advertising cost for 2014 to be $1.6 million, He introduced the new plan to his sales managers just before the New Year. The manager of the east sales location, Tony Samson, was not happy. He complained that the new allocation method was unfair and would increase his advertising costs significantly over the prior year. The east location sold high volumes of low-priced used cars and most of the corporate advertising budget was related to new car sales. Fallowing Tony's complaint, Dan decided to take another hard look at what each of the divisions was paying for advertising before the new allocation plan. The resuits were as follows: (Click the icon to view the data) Read the equirements Requirement 1. Using 2013 data as the cost bases, show the amount of the 2014 advertising cost ($1,600,000) that would be allocated to each of the divisions based on (a) Dandridge's allocation method based on number of cars sold, (b) the stand alone methcd, (c) the incremental-allocation method, with divisions ranked on the basis of dollars spent on advertising in 2013. (Do not round interim calculations, Round the final answer to the nearest whole dollar. Enter a "O" for amount with a zero values.) Data Table Sales Location Cost Allocated Actual Number of Actual Advertising West North South 1. Using 2013 data as the cost bases, show the amount of the 2014 advertising cost ($1,600,000) that would be allocated to each of the divisions under the following criteria: (a) Dandridge's allacation method based on number of cars sold (b) The stand-alone methed (Using advertising costs.) (c) The incremental-allocation method, with divisions ranked on the basis of dollars spent on Cars Sold in 2013 Sales Location East West North South Cost Incurred in 2013 3,520 1,100 2,530 3,850 11,000 $ 319,500 404,700 617,700 788,100 S 2,130,000 advertising in 2013 2. Which method do you think is most equitable to the divislonal sales managers? What other options might President Dan Dandridge have for allocating the advertising costs? Print Done PrintDone Enter any number in the edit fields and then parts Clear All Check Answer

Explanation / Answer

Solution I

Part 1 - Allocating advertisement budget on the basis of cars sold (Dandridge's Method)

Percentage

0.32

(3520/11000)

$512000

($1600000*0.32)

0.1

(1100/11000)

$160000

($1600000*0.1)

0.23

(2530/11000)

$368000

($1600000*0.23)

0.35

(3850/11000)

$560000

($1600000*0.35)

Part 2 - Allocation as per stand alone method

Percentage

(I)

Joint cost

(Ii)

Allocation

(I * Ii)

0.15

($319500/$2130000)

0.19

($404700/2130000)

0.29

($617700/2130000)

0.37

($788100/$2310000)

Part 3 - Incremental allocation method for advertisement cost

$811900

($1600000 - $788100)

$194200

($811900 - $617700)

$0

($194200 - $194200)

Solution II

After analysing all three methods of allocating the advertisement budget cost to various location, Stand alone Method is the most appropriate and best methos to allocate the cost. This method use the percentage for each location as a separate location and its individuality Hence each location has been allocated the same relative proportion cost.

Sales manager would likely not consider other two methods since incremental method doest not allocate any cost to east division which has highest number of car sales.

Sales manager would also not consider car sold method for allocation since cost and sales units are always not correlate to cost. It may be possible one location sell at higher prices with lower units and with high cost and one location sell at lower prices with more number of units and with lower cost hence due to these factors car sales method of allocation becomes not useful.

Apart from these method dandridge might also consider sales value method in which cost will be allocated as per sales value.

Activity based costing method can also be used for allocating advertisement cost

Specific Method can be used to allocate the cost. Example if any component of cost is specifically traceable to any location then such cost would be allocated to that location and remaining cost can be allocated as per other suitable criteria like stand alone method.

Sales location Number of cars sold

Percentage

Joint cost Allocation East 3520

0.32

(3520/11000)

$1600000

$512000

($1600000*0.32)

West 1100

0.1

(1100/11000)

$1600000

$160000

($1600000*0.1)

North 2530

0.23

(2530/11000)

$1600000

$368000

($1600000*0.23)

South 3850

0.35

(3850/11000)

$1600000

$560000

($1600000*0.35)

Total 11000 $1600000

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