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 beavy-duty riding shampooer sold to hotels and convention centers. A segmented income statement is shown below. Model 1 Model 21 Model 3 Sales $250,000 $574,000 $603,500 Total $1,427,500 Less variable costs of goods sold (92,500) (167,160) (341,600) (601,260) Less commissions Contribution margin (5,800) $151,700 (35,000) $371,840 (22,000) (62,800) $239,900 $763,440 Less common foxed expenses: Foxed factory overhead Fixed selling and administrative, Operating income (375,000) (311,000) $77,440 While all models have positive contribution margins, Reshier Company is concemed 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: Activity Engineering Activity Cost Activity Driver Driver Usage by Model O Model 1 Model 2 Model 3 $86,000 Engineering hours Setting up 184,000 Setup hours 290 12,400 75 135 Customer service 100,000 Service calls 14,400 12,700 1,440 29,135 19,135