allocate all common costs
A local coffee shop has two major product lines—drinks and pastries. If the manager allocates common costs on any objective basis discussed in this chapter, the drinks are profitable, but the pastries are not. The manager is concerned that the supervisor at corporate headquarters will drop the pastries. The manager is concerned because a relative, who is struggling to make a go of a new business, supplies pastries to the coffee shop. The manager, therefore, decides to allocate all common costs to the drinks because “Drinks can afford to absorb these costs until we get the pastries line on its feet.” After assigning all common costs to drinks, both the drinks and pastries product lines appear to be marginally profitable. Consequently, corporate headquarters decides to continue the pastries line.
What can we do to boost pastry sales?
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