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Advertising

with which each cost object used the respective activity ular target audience. Advertising has taken many different
drivers. forms since the beginning of time. For instance, archaeol-
A cost driver may be defined to be “any factor that ogists have uncovered walls painted in Rome announcing
has the effect of changing the level of total cost for a cost gladiator fights as well as rock paintings along Phoenician
object” (Blocher et al., 1999, p. 8). In general, four types trade routes used to advertise wares. From this early begin-
of cost drivers can be identified: volume-based, activity- ning, advertising has evolved to take a variety of forms and
based, structural, and executional (Blocher, et al., 1999, p. to permeate nearly every aspect of modern society.
61). Activity-based management focuses on activity-based The various delivery mechanisms for advertising
cost drivers. In investigating and specifying cost drivers, include banners at sporting events, billboards, Internet
many methods are used, such as cause-and-effect dia- Web sites, logos on clothing, magazines, newspapers,
grams, cost simulations, and Pareto analysis. radio spots, and television commercials. Advertising has so
Traditional cost assignment systems typically would permeated everyday life that individuals can expect to be
assign directly to the cost objects the costs of those exposed to 1,500 to 3,000 different messages each day.
resource consumptions that can be economically traced While advertising may seem like the perfect way to get a
directly to units of output requiring the resources. The message out, it does have several limitations, the most
remaining costs, referred to as indirect costs, would be commonly noted ones being its inability to focus on an
accumulated into one or more cost pools, which would individual consumer’s specific needs, provide in-depth
subsequently be allocated to the cost objects according to information about a product, and be cost-effective for
volume-related bases of allocation. When different prod- small companies.
ucts consume resources at rates that are not accurately
reflected in their relative numbers (volumes), a traditional
cost allocation approach will result in product cost cross- FORMS OF ADVERTISING
subsidization. That is, a high-volume, relatively simple Advertising can take a number of forms, including advo-
product will end up overcosted and subsidizing a subse- cacy, comparative, cooperative, direct mail, informational,
quently undercosted, low-volume, relatively complex institutional, outdoor, persuasive, product, reminder,
product, resulting in inaccurate unit costing and subopti- point-of-purchase, and specialty advertising.
mal product-line pricing decisions and performance eval-
uations. Activity-based costing tries to take the Advocacy Advertising. Advocacy advertising is normally
nonuniformity of resource consumption across products thought of as any advertisement, message, or public com-
into account in the assignment of costs. munication regarding economic, political, or social issues.
The advertising campaign is designed to persuade public
SEE ALSO Management
opinion regarding a specific issue important in the public
arena. The ultimate goal of advocacy advertising usually
BIBLIOGRAPHY relates to the passage of pending state or federal legisla-
Blocher, Edward J., Chen, Jung H., and Lin, Thomas W. (2002). tion. Almost all nonprofit groups use some form of advo-
Cost Management: A Strategic Emphasis (2nd ed.). New York:
Irwin/McGraw-Hill. cacy advertising to influence the public’s attitude toward a
particular issue.
Cooper, Robin, Kaplan, Robert S., Maisel, Lawrence S., Morris-
sey, Eileen, and Oehm, Ronald M. (1992). Implementing One of the largest and most powerful nonprofit advo-
Activity-Based Cost Management: Moving from Analysis to cacy groups is the American Association of Retired Per-
Action. Montvale, NJ: Institute of Management Accountants. sons (AARP). The AARP fights to protect social programs
Hilton, Ronald W., Maher, Michael W., and Selto, Frank H. such as Medicare and Social Security for senior citizens by
(2003). Cost Management: Strategies for Business Decisions encouraging its members to write their legislators, using
(2nd ed.). Boston: McGraw-Hill.
television advertisements to appeal to emotions, and pub-
lishing a monthly newsletter describing recent state and
Clifford Brown federal legislative action. Other major nonprofit advocacy
Lawrence A. Klein groups include the environmental organization Green-
peace, Mothers against Drunk Driving, and the National
Rifle Association.

ADVERTISING Comparative Advertising. Comparative advertising com-
Advertising is often thought of as the paid, nonpersonal pares one brand directly or indirectly with one or more
promotion of a cause, idea, product, or service by an iden- competing brands. This advertising technique is very
tified sponsor attempting to inform or persuade a partic- common and is used by nearly every major industry,

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