Johnson Company has two departments, Arrive and Go. Relevant information is presented below: $$\begin{array} { l l l }
& \text { Arrive } & \text { G } 0 \
\text { Budgeted Sales } & \$ 400,000 & \$ 2,000,000 \
\text { Actual Sales } & \$ 300,000 & \$ 2,100,000
\end{array}$$ Total advertising expense is $300,000. If the allocation base is changed from budgeted sales to actual sales, the amount allocated to the Arrive Department will:
A) increase by $12,500
B) decrease by $12,500
C) decrease by $25,000
D) increase by $25,000

Question

Johnson Company has two departments, Arrive and Go. Relevant information is presented below: $$\begin{array} { l l l } 
& \text { Arrive } & \text { G } 0  \
\text { Budgeted Sales } & \$ 400,000 & \$ 2,000,000 \
\text { Actual Sales } & \$ 300,000 & \$ 2,100,000
\end{array}$$ Total advertising expense is $300,000. If the allocation base is changed from budgeted sales to actual sales, the amount allocated to the Arrive Department will:
A) increase by $12,500
B) decrease by $12,500
C) decrease by $25,000
D) increase by $25,000

Quizplus · Accepted Answer

The allocation based on budgeted sales gives Arrive 16.67% ($400,000/$2,400,000) of the $300,000 expense, which is $50,000. Based on actual sales, Arrive gets 12.5% ($300,000/$2,400,000) of the $300,000 expense, which is $37,500. The allocation decreases by $12,500.

Johnson Company Has Two Departments, Arrive and Go Total Advertising Expense Is $300,000