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.

Model $1$ Model $2$ Model $3$ Total

Sales $$260,000$ $$598,000$ $$600,500$ $$1,458,500$

Less variable costs of goods sold $(98,500)(156,600)(347,600)(602,700)$

Less commissions $(4,200)(27,000)(23,750)(54,950)$

Contribution margin $$157,300$ $$414,400$ $$229,150$ $$800,850$

Less common fixed expenses:

Fixed factory overhead $(415,000)$

Fixed selling and administrative $(303,000)$

Operating income $$82,850$

While all models have positive contribution margins, Reshier Company is concerned because operating income is less than $10$ percent of sales and is low 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:

Driver Usage by Model

Activity Activity Cost Activity Driver Model $1$ Model $2$ Model $3$

Engineering $$77,000$ Engineering hours $74080180$

Setting up $182,000$ Setup hours $12,40012,80029,180$

Customer service $117,000$ Service calls $14,3001,44019,180$

In addition, Model $1$ requires the rental of specialized equipment costing $$21,500$ per year.

Required:

Question Content Area

$1.$ 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, leave it blank or enter $"0".$