Question

​GEICO, the​ number-two auto insurer with ​$15 billion in revenue last​ year, spent ​$0.80 billion on advertising that year and plans to continue spending the same percentage of sales on advertising next year. The average​ advertising-to-sales ratio for the insurance industry is 0.30 percent of sales. If GEICO projects ​$17 billion in sales next​ year, using the​ percentage-of-sales method of advertising​ budgeting, how much will the company budget for advertising if basing it on projected​ sales?

Answer 1

Answer:

The company will budget $0.91 billion for advertising

Explanation:

Determine the initial percentage of sales spent in advertising is as shown;

initial percentage of sales=(amount spent in advertising/total revenue)×100

where;

amount spent in advertising=0.8 billion

total revenue=15 billion

replacing;

initial percentage of sales=(0.8/15)×100=5.33%

Determine forecasted percentage of sales as shown;

forecasted sales=initial percentage×forecasted sales

forecasted advertising=5.33% ×17 billion

forecasted advertising=$0.91 billion

The company will budget $0.91 billion for advertising