Question

GEICO, the​ number-two auto insurer with ​$15 billion in revenue last​ year, spent ​$0.9 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 0.1 percent of sales. If GEICO projects ​$20 billion in sales next​ year, using the​ percentage-of-sales method of advertising​ budgeting, how much will the company budget for advertising of basing it on projected​ sales?

Answer 1

Answer:

$1.54 billion

Explanation:

Geico advertising to sales ratio for last year = advertising/sales = 1.1/15 = 7.3333%  

Advertising expense based on projected sales = 21*7.3333% = 1.54 $billion $

and the advertising expense based on industry average = 21*.4% = .084 $billion  

The insurer Geico is spending much higher than industry spend on advertising. The correct answer is $1.54 billion .