Reference no: EM13958007

Kiddo Company manufactures and ships children's stuffed animals across the nation. The following are profit statements for the company's two lines of business

		Stock Stuffed Animals (Stock)			Custom Stuffed Animals (Custom)
Sales		$6,996,000			$4,664,000
Less direct costs		2,470,000			3,920,000
Less allocated costs		3,330,000			1,180,000
Income (loss) before taxes		$1,196,000			$(436,000)

Costs that are easily associated with each line of business are included in the direct costs. Allocated costs include costs that are not directly traced to the business units. These costs include employee benefits, rent, telecommunications costs, and general and administrative costs, such as the salary of the CEO of Kiddo.

At the start of 2014, allocated costs were estimated as follows:

Employee benefits		$1,580,000
Rent		1,530,000
Telecommunications		481,000
General and administrative costs		919,000
Total		$4,510,000

In the past, allocations have been based on headcount (the number of employees in each business unit). There were 240 employees in Stock and 80 employees in Custom. The new controller of Kiddo believes that the key driver of employee benefits and telecommunications costs is headcount. However, rent is driven by space occupied, and general and administrative costs are driven by relative sales. Kiddo rents 40,000 square feet; approximately 20,000 is occupied by Stock employees and 20,000 by Custom personnel.

Prepare profit reports for Stock and Custom, assuming the company allocates costs using headcount, space occupied, and sales as allocation bases. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).

		Stock Stuffed		Custom Stuffed
Sales Direct costs Allocated costs Income (loss) before		$6,996,000		$4,664,000