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18 April, 16:46

Smith's Department Store needs to decide which advertising budgeting method to use. The following information is needed to calculate Smith's advertising budget using all three methods. • Affordable Budget Method Last year's sales were $9,815,000 and are projected to increase by 4.5% for next year. Last year's expenses were 41% of last year's sales and are projected to decrease by 1.5% for next year. Last year the business earned a profit of $4,587,600. Profit is expected to increase by 2% over last year's figures. Based on the last year's figures and the projected changes in sales, expenses and profit, calculated forecasted sales, expenses and profits for the upcoming year. Calculate the amount left to spend on advertising. Forecasted sales Forecasted expenses Forecasted profit expectation Amount left to spend on advertising

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  1. 18 April, 16:50
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    (A) $1,203,250

    (B) $10,256,675

    (C) $4,051,387

    (D) $4,679,352

    (E) $1,525,936

    Explanation:

    (a) Amount left to spend on advertising:

    Sales (for the year) = $9,815,000

    Expenses = 41% of last year sales

    = 0.41 * $9,815,000

    = $4,024,150

    Profit = $4,587,600

    Amount spent on advertising = Sales - Expenses - Profit

    = $9,815,000 - $4,024,150 - $4,587,600

    = $1,203,250

    The amount spent on advertising last year is $1,203,250.

    (b)

    Forecasted sales = Sales (1 + 4.5%)

    = $9,815,000 (1 + 0.045)

    = $9815000 * 1.045

    = $10,256,675

    (c)

    Forecasted expenses = Forecasted sales (41% - 1.5%)

    = $10,256,675 * 39.5%

    = $4,051,387

    (d)

    Forecasted profit expectation = Profit * (1 + percent increase in profit)

    = $4,587,600 (1 + 0.02)

    = $4,587,600 * 1.02

    = $4,679,352

    (e) Amount left to spent on advertising:

    = Forecasted Sales - Forecasted Expenses - Forecasted Profit expectation

    = $10,256,675 - $4,051,387 - $4,679,352

    = $1,525,936

    Since the profit and sales were higher and expenses were lower the amount left for advertising expenses was higher.
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