Lillard’s Sports Store has three operating departments, and it conducts advertising that benefits all departments. Advertising costs are $200,000. Sales for its operating departments are in the table below. How much advertising cost is allocated to Department 1 if the allocation is based on departmental sales? Department Sales1 $ 440,0002 800,0003 360,000Multiple Choice$55,000.$45,000.$100,000.$90,000.$110,000.
Question
Lillard’s Sports Store has three operating departments, and it conducts advertising that benefits all departments. Advertising costs are 440,0002 800,0003 360,000Multiple Choice45,000.90,000.$110,000.
Solution
To allocate the advertising cost based on departmental sales, we first need to find the total sales of all departments.
Step 1: Add up all the sales 800,000 (Department 2) + 1,600,000 (Total Sales)
Step 2: Find the proportion of Department 1's sales to the total sales 1,600,000 (Total Sales) = 0.275
Step 3: Multiply the total advertising cost by the proportion of Department 1's sales to find the amount of advertising cost allocated to Department 1 55,000
So, $55,000 of the advertising cost is allocated to Department 1.
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