Discuss why Company A considers its Advertising a fixed cost while Company B considers it as a...

Question:

Discuss why Company A considers its Advertising a fixed cost while Company B considers it as a variable cost.

Advertising expenses

The companies spend a considerable amount of their money on the advertisement of their products. Advertisement is considered an investment as it creates awareness about the company and its business in the public.

Answer and Explanation: 1

The expenditure on advertisement is controlled by the company by setting limits to the advertising budgets which implies the advertising expenses are fixed in nature. For example, a company allocates a fixed percentage of the previous year revenue as an advertising budget. Because the budget is calculated as a fixed percentage of actual revenue it is considered as a fixed expense.

However, if a business allocates a range for advertising expenses, then it is deemed variable. For example, if a company recommends 3%-8% spending on an advertisement then it is a variable expense.


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Cooperative Advertising: Definition & Examples

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Chapter 18 / Lesson 19
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Business isn't always about competition. Sometimes it's about teamwork. In this lesson, you'll learn about cooperative advertising, including what it is, some related concepts, and some examples illustrating it. A short quiz follows the lesson.


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