XLF is a company with three operating divisions located in California, Nevada and Arizona. XLFs headquarters oversees the three divisions and incurred an annual costs of $2,400,000 in office expenses, accounting costs, and salaries.

	California	Nevada	Arizona
Number of employees	1,500	300	300
Net income (loss) before allocating costs	($100,000)	$400,000	$500,000

1. Allocate the headquarters costs to the three divisions based on number of employees. (3 points)

2. Allocate the headquarters costs to the three divisions based on net income (loss). (3 points)

3. Briefly discuss the advantages and/or disadvantages of the two methods. (4 points)