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GEICO, the number-two auto insurer with $18 billion in revenue last year, spent $1.7 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 0.3 percent of sales. If GEICO projects $22 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?

The advertising-to-sales ratio for the year is?

Respuesta :

anthougo

Based on projected sales of $22 billion next year and using the percentage-of-sales method for the advertising budgeting, GEICO will budget $2,076,800,000 for advertising.

Data and Calculations:

Last year's revenue = $18 billion

Advertising expense last year = $1.7 billion

Advertising-to-sales ratio = 9.44% ($1.7/$18 x 100)

Industry average advertising-to-sales ratio = 0.3%

GEICO's projected sales next year = $22 billion

Therefore, its advertising budget for next year = $2,076,800,000 ($22 billion x 9.44%)

Thus, GEICO will spend $2,076,800,000 on advertising next year's sales.

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