=+13-35 KK Allocation of common costs OBJECTIVE 4 Prime Car Sales uses all types of media to advertise its products (television, radio, newspaper, etc.). At the end of 2014, the company CEO, Malcolm Gray, decided that all advertising costs would be incurred by corporate headquarters and allocated to each of the company’s three sales locations based on number of vehicles sold. Malcolm was confident that his corporate purchasing manager could negotiate better advertising contracts on a corporate-wide basis than each of the sales managers could on their own.

Malcolm budgeted total advertising cost for 2015 to be $1.8 million. He introduced the new plan to his sales managers just before the new year.