Question

If a company spends $6 million to advertise its camera lines in North America, assembles and ships 300,000 entry-level cameras and 150,000 multi-featured cameras to its North American dealers, derives revenues of $45 million from its sales of entry-level cameras and $55 million from the sales of its multi-featured cameras, then (please provide calculations)

• 45% of the $6 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 55% will be allocated to the costs of multi-featured cameras.
• advertising costs for entry-level and multi-featured cameras will be 4% of camera revenues in North America.
• the per camera advertising costs for entry-level cameras will be twice as large as the per camera advertising costs for multi-featured cameras.
• the per camera advertising costs for entry-level cameras will be $13.33 and the per camera advertising costs for multi-featured cameras will also be $13.33.
• 50% of the $6 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 50% will be allocated to the costs of multi-featured cameras.

Answer 1

Given:

	Entry-level Cameras	Multi-featured Cameras
Units	300,000	150,000
Sales (Dollars)	45,000,000	55,000,000

Total advertising expenses = 6 million

Cost allocation Calculations :

(i) 45% of the $6 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 55% will be allocated to the costs of multi-featured cameras.

Costs of advertising for entry-level cameras = 45% * 6000000 = 0.45 * 6000000 = 2,700,000

Costs of advertising for multi-featured cameras = 55% * 6000000 = 0.55 * 6000000 = 3,300,000

(ii) Advertising costs for entry-level and multi-featured cameras will be 4% of camera revenues in North America.

Costs of advertising for entry-level cameras = 4% * Entry-level Camera Revenue in North America

= 0.04 * 45 million = 1.8 million

Costs of advertising for Multi-featured cameras = 4% * Multi-featured Camera Revenue in North America

= 0.04 * 55 million = 2.2 million

(iii) The per camera advertising costs for entry-level cameras will be twice as large as the per camera advertising costs for multi-featured cameras.

Let the per camera advertising costs for multi-featured cameras be x, then, the per camera advertising costs for entry-level cameras will be 2x.

Total advertising costs = 6 million

Advertising costs for multi-featured cameras = No of multi-featured cameras * Per camera advertising costs for multi-featured cameras

Advertising costs for multi-featured cameras = 150,000 * x = 150000x

Similarly, Advertising costs for entry-level cameras = 300000 * 2x = 600000x

150000x + 600000x = 6 million

750000x = 6,000,000

x = 6,000,000 / 750,000 = 8  

Advertising costs for multi-featured cameras = 150000x = 150000x * 8 = 1,200,000

Advertising costs for entry-level cameras = 600000x = 600000 * 8 = 4,800,000

(iv) The per camera advertising costs for entry-level cameras will be $13.33 and the per camera advertising costs for multi-featured cameras will also be $13.33.

Advertising costs for multi-featured cameras = No of multi-featured cameras * 13.33 = 150000 * 13.33 = 1,999,500

Advertising costs for entry-level cameras = No of entry-level cameras * 13.33 = 300000 * 13.33 = 3,999,000

(v) 50% of the $6 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 50% will be allocated to the costs of multi-featured cameras.

Advertising costs for multi-featured cameras = 50% * 6 million = 3 million

Advertising costs for entry-level cameras = 50% * 6 million = 3 million