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 21 Model 3 Total Sales $260,000 $554,000 $657,500 $1,471,500 Less variable costs of goods sold (92,000) (168,480) (357,600) (618,080) Less commissions (5,700) (28,500) (24,000) (58,200) Contribution margin $162,300. $357,020 $275,900 $795,220 Less common fixed expenses: Fixed factory overhead (420,000) Fixed selling and administrative Operating income (295,000) $80,220 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 $85,000 Engineering hours 800 75 125 Setting up 198,000 Setup hours 12,200 Customer service 116,000 Service calls 13,700 12,100 1,600 29,125 19,125 Required: 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". Reshier Company Segmented Income Statement Model 1 Model 2 Model 3 Total Contribution margin Less traceable fixed expenses: Product margin Less common fixed expenses: Operating Income 100000 000 00000 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 s to operating income 3. What if Reshier Company can only avoid 174 hours of engineering time and 5,500 hours of setup time that are attributable to Model 1? How does that affect the alternatives presented in Requirement 2? Which alternative is more cost effective and by how much? Do NOT rand interim calculations and, if required, round your answer to the nearest dollar. will add $ to operating income