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Barbara was evaluating the profitability of her bike shop, which sells bicycles, skateboards, and frisbee golf items. Since the frisbee golf segment was new, she
Barbara was evaluating the profitability of her bike shop, which sells bicycles, skateboards, and frisbee golf items. Since the frisbee golf segment was new, she wasn't surprised to see a segment loss after allocating her selling, general, and administrative costs to the three product areas using one rate, based on percentage of sales revenue. After looking more closely, though, she realized the selling, general, and administrative costs came from three main activity areas and could be allocated using more specific rates based on cost drivers as follows. If the frisbee golf line requires 35 hours of management time and 170 square feet of space, and it generates just 5% of total revenues for the shop, how much of these total SG&A costs were initially allocated to the golf line? Costs allocated $ How much of these costs would have been allocated had Barbara used activity-based rates
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