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

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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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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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