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: 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: In the past, allocations have been based on headcount (the number of employees in each business unit). There were 210 employees in Stock and 70 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 42,000 square feet; approximately 21,000 is occupied by Stock employees and 21,000 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).) Alocated cost Direct cost Income (loss) before taxes Sales Custom StuffedStock Stuffed Animals (Stock)Custom Stuffed Animals (Custom)Sales$6,696,000$4,464,000Less direct costs2,450,0004,100,000Less allocated costs3,230,0001,110,000Income (loss) before taxes$1,016,000$(746,000) Solution.

1. 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:
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:
In the past, allocations have been based on headcount (the number of employees in each
business unit). There were 210 employees in Stock and 70 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 42,000 square feet; approximately 21,000 is
occupied by Stock employees and 21,000 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).)
Alocated cost
Direct cost
Income (loss) before taxes
Sales
Custom StuffedStock Stuffed
Animals (Stock)Custom Stuffed
Animals (Custom)Sales$6,696,000$4,464,000Less direct costs2,450,0004,100,000Less
allocated costs3,230,0001,110,000Income (loss) before taxes$1,016,000$(746,000)
Solution