1. Don Dandy auto sales uses television, radio, newspaper and other types of media to advertise its products. At the end of 2012 the company president 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. Don 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. Doug budgeted total advertising costs for 2013 to be 1.9 million. He introduced the new plan to his sales managers just before the New Year. The manager of the east sales location Casey Carter 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. Following Casey's complaint, Don decided to take another hard look at what each of the divisions were paying for advertising before the new allocation plan. The results were as follows:
|
Sales location
|
Actual number of cars sold in 2012
|
Actual advertising cost incurred in 2012
|
|
East
|
3630
|
305200
|
|
West
|
1100
|
436000
|
|
North
|
2200
|
654000
|
|
South
|
4070
|
784000
|
|
Total
|
11000
|
2180000
|
a. Using 2012 data as the cost bases, show the amount of the 2013 advertising cost (1,900,000) that would be allocated to each of the divisions based on (a) Douglas allocation method based on number of cars sold (b) the stand alone method (c) the incremental allocation method, with divisions ranked on the basis of dollars spent on advertising in 2012 (round only the final answer to the nearest whole dollar)
|
Sales Location
|
Cost allocated (a)
|
Cost allocated (b)
|
Cost allocated (c)
|
|
East
|
|
|
|
|
West
|
|
|
|
|
North
|
|
|
|
|
South
|
|
|
|
|
Total
|
|
|
|