1) If the Cost were split simply 50-50- than allocated expense would be -
Advertising Expenses - $ 2.5 M for each business and
warehouse expenses - $ 1.5 M for each business
2) As per my view the Advertisement expenses should be allocated in the ratio of sales (150:20) and warehouse expenses should be allocated on the basis of use of floor area (75:25) and according to that - (i) Advertisement expenses- $4.41M would be allocated to unicycle business and balance $0.59M to bicycle business.
(ii) Warehouse expenses- $2.25M would be allocated to unicycle business and balance $0.75M to bicycle business.
3) Too many and less value expenses should be allocated on the basis of sale value.
To answer your questions:
1) If the cost is split 50-50, the allocated expenses would be as follows:
- Advertising Expenses: $2.5 million for each business
- Warehouse Expenses: $1.5 million for each business
To arrive at these allocations, you simply divide the total cost equally between the two businesses.
2) Your view suggests a different approach to allocating expenses. You propose allocating advertising expenses according to the sales ratio of 150:20 and warehouse expenses based on the use of floor area in the ratio of 75:25. Here's how the allocations would look according to your approach:
(i) Advertising Expenses:
- $4.41 million allocated to the unicycle business (calculated as: 150 / (150+20) * total advertising expenses)
- $0.59 million allocated to the bicycle business (calculated as: 20 / (150+20) * total advertising expenses)
(ii) Warehouse Expenses:
- $2.25 million allocated to the unicycle business (calculated as: 75 / (75+25) * total warehouse expenses)
- $0.75 million allocated to the bicycle business (calculated as: 25 / (75+25) * total warehouse expenses)
These allocations are determined by multiplying the appropriate percentage by the total expenses in each category.
3) You mentioned that expenses should be allocated on the basis of sales value. However, you didn't provide any specific details or ratios for this allocation. If you can provide more information or specify how you would allocate expenses based on sales value, I would be happy to assist you further with the calculation.