Jim Dandy Auto Sales uses all types of media to advertise its products (television, radio, newspaper, Internet,
Question:
The manager of the East sales location, Tom Stevens, was not happy. He complained that the new allocation method was unfair and increased his advertising costs significantly. The East location sold high volumes of low-priced used cars and most of the corporate advertising budget was related to new car sales.
Required:
1. Show the amount of the 2017 advertising cost ($1,600,000) that would be allocated to each of the divisions under the following criteria:
a. McKinnley's allocation method based on number of cars sold
b. The stand-alone method if divisions had done their own advertising
c. The incremental-allocation method, with divisions ranked on the basis of dollars they would have spent on advertising in 2017
2. Which method do you think is most equitable to the divisional sales managers? What other options might President Jim McKinnley have for allocating the advertising costs?
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134475585
16th edition
Authors: Srikant M. Datar, Madhav V. Rajan