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 $225,000 $586,000 $612,500 $1,423,500 Less variable costs of goods sold (98,500) (155,720) (331,200) (585,420) Less commissions (4,600) (30,500) (20,500) (55,600) Contribution margin $121,900 $399,780 $260,800 $782,480 Less common foxed expenses: Fixed factory overhead (410,000) Fixed selling and administrative Operating income (291,000) $81,480 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 $78,000 Engineering hours 740 78 182 Setting up 200,000 Setup hours Customer service 118,000 Service calls 12,100 14,200 13,300 1,460 29,182 19,182 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" Sales Less variable cost of goods sold Less commissions Contribution margin Reshier Company Segmented Income Statement. Model 1 Model 2 Model 3 Total 225.000 V 586,000 V 612,500 1,423,500 98,500 155,720 331,200 V 585,420 4,600 30,500 20,500 55,600 121,900 V 399,780 260,800 782,480 Less traceable fixed expenses:" Engineering 57,720 6,084 14,196 78,000 Setting up 44.337 48,734 106,929 V 200,000 Equipment rental 22,500 V 0 22.500 Customer service 48,091 4,945 64,964 V 118,000 Product margin -50,741 V 340,017 74.711 V 363,900 V Less common foxed expenses Factory overhead Selling and admin, expense 0 X -291,000 X Operating income 337,020 X 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? Keeping Model 1 or dropping it 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. Dropping Model 11 will addi 50,748 to operating income 3. What if Reshier Company can only avoid 176 hours of engineering time and 5,150 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 round interim calculations and, if required, round your answer to the nearest dollar. Keeping Model 1 will add s to operating income