In: Accounting
An advertising agency, Round Ltd, incurred the following expenses during an advertising campaign for Nando’s:
Primary research costs (outsourced to Mean Research) – $10 000
Secondary research costs – 5 hours (strategist)
Flyers:
Design – 4 hours (artist)
Printing/production (outsourced to Align Printers) – 8 000 @ R2 each
Distribution (outsourced to Fast Couriers) – 8 000 @ $0.50 each
In-store display:
Design – 7 hours (artist)
Printing/production (outsourced to Align Printers) – $7 000
Delivery and set-up (outsourced to Fast Couriers) – $2 000
In-store promotion:
Promoters – (outsourced to Talent Ltd) – 2 @ $500 each per day for 5 Saturdays
Uniforms – 2 @ $500 each
Promotional items (fruit juice) – 120 boxes at $25 each
Prizes (provided by Nando’s) – $15 000
Magazine:
Design – 10 hours (artist)
Copy – 5 hours (copywriter)
Production (outsourced to Align Printers) – $7 500
1 DPS colour @ $50 000 in Dough magazine (a weekly publication) for 5 weeks
Administration costs – $8 000
All prices exclude VAT (14%), the agency is VAT registered and the standard commission is applicable to media. Round off to the nearest Dollar where applicable and show all calculations.
1.1 Calculate the complete budget if the agency uses the fee-commission combination and charges a fee of $75 000.
1.2 Round Ltd places a 20% mark-up on research, 15% on printing/production costs and 10% on other outsourced expenses. Nando’s asked for a 6% kickback from the media. The media gave a 5% cash discount for early payment, but the agency kept the cash discount.
1.2.1 Calculate the budget for Nando’s if Round Ltd uses the negotiated commission system.
1.2.2 Which system is preferable to the Nando’s, the fee-commission combination or the negotiated commission system? Prove your answer by calculating the difference between the two remuneration systems.
1.3 Round Ltd places a 20% mark-up on all costs and staff time is charged at a flat rate of $350 per hour. Nando’s asked for a 10% kickback from the media.
Calculate the complete budget for Nando’s if Round Ltd uses the cost-plus system.
Particulars | Amount ($) | Remarks |
Commission Charged (A) | 75,000 | As Provided |
Primary research cost | 10,000 | As Provided |
Secondary research cost | 1,750 | 5*350 |
Flyers: | ||
Design | 1,400 | 4*350 |
Printing/production | 16,000 | 8000*2 |
Distribution | 4,000 | 8000*0.5 |
In-Store display: | ||
Design | 2,450 | 7*350 |
Printing/production | 7,000 | As Provided |
Distribution | 2,000 | As Provided |
In-Store promotion: | ||
Promoters | 5,000 | 2*500*5 |
Uniforms | 1,000 | 2*500 |
Promotional Items | 3,000 | 120*25 |
Prizes | - | Not Provided |
Magazine: | ||
Design | 3,500 | 10*350 |
Copy | 1,750 | 5*350 |
Production | 7,500 | As Provided |
DPS Colour | 50,000 | As Provided |
Administrative Costs | 8,000 | |
Total Costs (B) | 1,24,350 | |
Profit/(loss) [A-B] | -$ 49,350 |