keep or drop decision alternatives relevant costs

Keep-Or-Drop Decision, Alternatives, Relevant Costs Reshier Company makes three types of rug shampooers. Model 1 is the basic model rented through hardware stores and supermarkets. Model 2 is a more advanced model with both dry-and wet-vacuuming capabilities. Model 3 is the heavy-duty riding shampooer sold to hotels and convention centers. A segmented income statement is shown below. While all models have positive contribution margins, Reshier Company is concerned because operating income is less than 10 percent of sales and is lo for this type of company. The company's controller gathered additional information on fixed costs to see why they were so high. The following information on activities and drivers was gathered: In addition, Model 1 requires the rental of specialized equipment costing $23,500 per year, 1. Reformulate the segmented income statement using the additional information on activities. Use a minus sign to indicate any negative margins. Do NOT round interim calculations and, if required, round your answer to the nearest dollar. If amount box does not require an entry, feave it blank or enter 0. 2. Using your answer to Requirement 1, assume that Reshier Company is considering dropping any model with a negative product margin, What are the alternatives? Which alternative is more cost effective and by how much? (Assume that any traceable fixed costs can be avoided.) Do NOT round interim calculations and, if required, round your answer to the nearest dollar. will add 1 to operating income 3. What if Reshier Company can only avoid 188 hours of engineering time and 5,100 hours of setup time that are attnbutable to Model 17 How does that affect the alternatives presented in Requirement 2 ? Which attemative is mone cost effective and by how much? Do NoT round interim calculations and, if required, round your answer to the nearest dollar. will a0d 1 to operating income