Explore BrainMass

Managerial Accounting and Marketing Costs

Golub Company manufactures three products, A, B, and C. It has three marketing managers, one for each product. During the first year of operations, the company allocated its $30,000 of actual advertising expense to products on the basis of the relative net sales of each product. In the second year, the advertising budget was increased to $60,000. Half was spent on general institutional advertising in the belief the company image would be enhanced. Of the other half, $10,000 was spent on Product A, $15,000 on Product B, and $5,000 on Product C. For purposes of income measurement, all advertising expenses continued to be allocated on the basis of sales. Certain data in the second year were as follows:

Total Product A Product B Product C
Net sales $460,000 $207,000 $128,000 $124,200
Advertising Expense 60,000 27,000 16,800 16,200
Income 55,000 25,500 12,000 17,500

When the marketing manager of Product A received these figures, he complained that his department was charged with an unfair portion of advertising, and that he should be held responsible only for the actual amount spent to advertise Product A.

a. Comment on the sales manager's complaint.
b. In Golub's responsibility accounting system, how much advertising expense should be charged to the department responsible for marketing Product A?

Solution Preview

a. Comment on the sales manager's complaint.
The sales manager's complaint is valid as the advertisement expenses must be divided as per the relevant spending on different products, but
here the spending has been allocated arbitrarily on the basis of sales.We have to use ABC costing. Activity-Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product ...

Solution Summary

This solution analyzes the data and scenario with the net sales, advertising expense and income for product A, B, and C. It comments on the complaints of the sales manager and if they are valid or not as well as how much advertising expense should be charged according to Golub's responsibility accounting system.