Doug Dandy Auto Sales uses all types of media to advertise its products (television, radio, newspaper, Internet and so on). At the end of 2016, the company president, Doug Dickens, 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. If the managers had done this same advertising on their own their advertising costs would be as follows: Read the requirements4. Requirement 1. Show the amount of the 2017advertising cost ($1,500,000) that would be allocated to each of the divisions under the following criteria: (a) Dickens' 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. (Do not round intermediary calculations. Round the final answer to the nearest whole dollar. Enter a "0" for amount with a zero values.) (a.) Sales Location Cost Allocated East West North South (b.) Cost Allocated (c.) Cost Allocated Requirement 2. Which method do you think is most equitable to the divisional sales managers? What other options might President Doug Dickens have for allocating the advertising costs? In this situation, (1) is probably the best method because (2) . Therefore, (3) . What other option(s) might President DougDickens have for allocating the advertising costs? A. Dickens could avoid allocating the advertising costs and absorb the costs through the company headquarters. B. Dickens could alternately separate the total $1,500,000 of advertising cost into two cost pools: one for new car advertising and one for used car advertising and allocate on the basis of new cars sold and used cars sold. C. Dickens could allocate the advertising cost equally among the divisions. D. All of the above are equitable alternatives. 1: More Info Doug 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. Dickens budgeted total advertising cost for 2017 to be $1.5 million. He introduced the new plan to his sales managers just before the New Year. The managers had already drawn up their advertising plans for 2017 and the corporate plan would do the same advertising for them as they had planned. Total advertising costs for 2017 were $1,500,000. 2: Data Table Sales Location Actual Number of Cars Sold in 2017 Advertising Costs in 2017 if Divisions Had Bought the Advertising East 3,520 $382,500 West 990 467,500 North 2,310 616,250 South 4,180 658,750 Total 11,000 $2,125,000 3: More Info The manager of the East sales location, Tim Samson, 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. 4: Requirements 1. Show the amount of the 2017 advertising cost ($1,500,000) that would be allocated to each of the divisions under the following criteria: (a) Dickens' 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

Doug Dandy Auto Sales uses all types of media to advertise its products (television, radio, newspaper, Internet and so on). At the end of 2016, the company president, Doug Dickens, 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. If the managers had done this same advertising on their own their advertising costs would be as follows: Read the requirements4. Requirement 1. Show the amount of the 2017advertising cost ($1,500,000) that would be allocated to each of the divisions under the following criteria: (a) Dickens' 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. (Do not round intermediary calculations. Round the final answer to the nearest whole dollar. Enter a "0" for amount with a zero values.) (a.) Sales Location Cost Allocated East West North South (b.) Cost Allocated (c.) Cost Allocated Requirement 2. Which method do you think is most equitable to the divisional sales managers? What other options might President Doug Dickens have for allocating the advertising costs? In this situation, (1) is probably the best method because (2) . Therefore, (3) . What other option(s) might President DougDickens have for allocating the advertising costs? A. Dickens could avoid allocating the advertising costs and absorb the costs through the company headquarters. B. Dickens could alternately separate the total $1,500,000 of advertising cost into two cost pools: one for new car advertising and one for used car advertising and allocate on the basis of new cars sold and used cars sold. C. Dickens could allocate the advertising cost equally among the divisions. D. All of the above are equitable alternatives. 1: More Info Doug 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. Dickens budgeted total advertising cost for 2017 to be $1.5 million. He introduced the new plan to his sales managers just before the New Year. The managers had already drawn up their advertising plans for 2017 and the corporate plan would do the same advertising for them as they had planned. Total advertising costs for 2017 were $1,500,000. 2: Data Table Sales Location Actual Number of Cars Sold in 2017 Advertising Costs in 2017 if Divisions Had Bought the Advertising East 3,520 $382,500 West 990 467,500 North 2,310 616,250 South 4,180 658,750 Total 11,000 $2,125,000 3: More Info The manager of the East sales location, Tim Samson, 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. 4: Requirements 1. Show the amount of the 2017 advertising cost ($1,500,000) that would be allocated to each of the divisions under the following criteria: (a) Dickens' 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

Financial And Managerial Accounting

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ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter18: Activity-based Costing

Section: Chapter Questions

Problem 3TIF: Communication The controller of New Wave Sounds Inc. prepared the following product profitability...

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Doug Dandy Auto Sales uses all types of media to advertise its products (television, radio, newspaper, Internet and so on). At the end of

2016, the company president, Doug Dickens, 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.

If the managers had done this same advertising on their own their advertising costs would be as follows:

Read the requirements4.

Requirement 1. Show the amount of the 2017advertising cost

($1,500,000) that would be allocated to each of the divisions under the following criteria: (a) Dickens' 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. (Do not round intermediary calculations. Round the final answer to the nearest whole dollar. Enter a "0" for amount with a zero values.)

	(a.)
Sales Location	Cost Allocated
East
West
North
South

(b.)

Cost Allocated

(c.)

Cost Allocated

Requirement 2. Which method do you think is most equitable to the divisional sales managers? What other options might President

Doug Dickens have for allocating the advertising costs?

In this situation,

(1)

is probably the best method because

(2)

Therefore,

(3)

What other option(s) might President DougDickens
have for allocating the advertising costs?

A. Dickens could avoid allocating the advertising costs and absorb the costs through the company headquarters.

B. Dickens could alternately separate the total $1,500,000 of advertising cost into two cost pools: one for new car advertising and one for used car advertising and allocate on the basis of new cars sold and used cars sold.

C. Dickens could allocate the advertising cost equally among the divisions.

D. All of the above are equitable alternatives.

1: More Info

Doug 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. Dickens budgeted total advertising cost for 2017 to be $1.5 million. He introduced the new plan to his sales managers just before the New Year. The managers had already drawn up their advertising plans for 2017 and the corporate plan would do the same advertising for them as they had planned. Total advertising costs for 2017 were $1,500,000.

2: Data Table

Sales Location	Actual Number of Cars Sold in 2017	Advertising Costs in 2017 if Divisions Had Bought the Advertising
East	3,520	$382,500
West	990	467,500
North	2,310	616,250
South	4,180	658,750
Total	11,000	$2,125,000

3: More Info

The manager of the East sales location, Tim Samson, 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.

4: Requirements

1.	Show the amount of the 2017 advertising cost ($1,500,000) that would be allocated to each of the divisions under the following criteria:
	(a)	Dickens' 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 Doug Dickens have for allocating the advertising costs?

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