Management of Wee Ones (WO), an operator of day-care facilities, wants the company's profit to be subdivided by center. The firm's accountant has provided the following data:

Budgeted Budgeted Actual Actual Direct Costs Direct Costs Center Revenue Revenue 336,000 425,000 561,000 $ $364,800 372,000 Downtown Irvine 588,000 516,800 465,000 H. Beach 756,000 714,000 638,400 713,000 $1,680,000 $1,700,000 $1,520,000 $1,550,000

Totals WO's advertising, which is handled by the home office, is not reflected in the preceding figures and amounted to $71,000. Assume that management used the allocation base that is most influenced by advertising effort and consistent with sound managerial accounting practices.

How much advertising would be allocated to the Irvine center?

The correct answer is $23,430.

Explanation:

According to the scenario, the given data are as follows:

Total actual revenue = $1,700,000

Irvine Center actual revenue = $561,000

Advertising cost = $71,000

So we can calculate the amount of advertising that would be allocated to the Irvine center by using following formula:

Advertising Cost allocated = (Irvine Center actual revenue × Advertising cost)   ÷ Total actual revenue

By putting the value, we get

= ($561,000 × $71,000)  ÷ ( $1,700,000)

= $23,430.

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