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

Number of employees:

California 1,500

Nevada 300

Arizona 300

Net income (loss) before allocating costs:

California ($100,000)

Nevada $400,000

Arizona $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. Brieflydiscuss the advantages and/or disadvantages of the two methods. (4 points)