Question
Lisa was evaluating the profitability of her bike shop, which sells bicycles, skateboards, and frisbee golf items. Since the frisbee golf segment was new, she
Lisa was evaluating the profitability of her bike shop, which sells bicycles, skateboards, and frisbee golf items. Since the frisbee golf segment was new, she wasnt 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.
SG&A Costs | Total Cost | Quantity of Cost Driver | ||||
---|---|---|---|---|---|---|
Management salaries | $42,500 | 850 | hours devoted to managing the lines | |||
Facility costs | 16,500 | 1,650 | square feet of space occupied | |||
Insurance and other | 11,600 | Percentage of sales revenue |
If the frisbee golf line requires 25 hours of management time and 135 square feet of space, and it generates just 6% of total revenues for the shop, how much of these total SG&A costs were initially allocated to the golf line?
Costs allocated |
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