Question

1. Advertising budgeting methods

• Last year’s sales were $11,600,000 and are projected to increase by 4% for next year. Last year’s expenses were 41% of last year’s sales and are projected to decrease by 2% for next year. Last year the business earned a profit of $4,117,600. Profit is expected to increase by 3% over last year’s figures. Plug in last years figures to see how much the company spent on advertising last year.

Sales (for the year)                                     

            Expenses                                         

                                                                                                  

            Profit                                                                                                   Amount spent on advertising                                      

• 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

Answer 1

Calculate amount spent on advertising last year
Sales for year	$11,600,000
Expenses	$4,756,000	11600000*41%
Profit	$4,117,600
Amount spent on advertising	$2,726,400	11600000-(4756000+4117600)
Thus, amount spent on advertising is $2,726,400
Calculate forecasted amount spending for advertising expense
Forecasted sales	$12,064,000	11600000*1.04
Forecasted expenses	$4,704,960	(41%-2%)*12064000
Forecasted profit expectation	$4,241,128	4117600*1.03
Amount left to spend on advertising	$3,117,912	12064000-(4704960+4241128)
Thus, amount left to spend on advertising is $3,117,912