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Patricia was evaluating the profitability of her bike shop, which sells bicycles, skateboards, and frisbee golf items. Since the frisbee golf segment was new,
Patricia 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. SG&A Costs Total Cost Quantity of Cost Driver Management salaries $51,300 900 hours devoted to managing the lines Facility costs 21,600 1.800 square feet of space occupied Insurance and other 8,000 Percentage of sales revenue
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