ACCT 310 Unit 2 DB - Main Post Cost Accounting

A traditional method is currently being used by the

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A traditional method is currently being used by the parent company for allocating their warehouse and advertising expenses for each of the businesses that it operates. A 50/50 split is the traditional method that is being used. The scenario has given data to be used to allocate these expenses in the traditional method and the total are shown as follows: Bicycle Business Unicycle Business Company Totals Combined Sales Totals $20M $150M $170M Available Warehouse Space 25,000 sq. ft. 75,000 sq. ft. 100,000 sq. ft. Expenses - Advertisement $2.5M $2.5M $5M Expenses - Warehouse $1.5M $1.5M $3M Expense Allocation Recommendations Since the greatest amount of revenue is being generated by the unicycle sales, to assist in allocating expenses the cost accounting could be used according to the sales volume of each division. The unicycle division of sales atones for eighty eight percent of the volume of sales total; it serves the company to engage a sixty/forty split for advertising expense. This would increase the bicycle company’s sales volume by increasing the expenses for advertising to $3 million and decrease the expenses for advertising to $2 million for the unicycle company. If a
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