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 $250,000 $554,000 $607,500 Less variable costs of goods sold (100,000) (164,960) (334,800) $1,411,500 (599,760) Less commissions Contribution margin (5,600) $144,400 (30,000) (22,000) (57,600) $359,040 $250,700 $754,140 Less common fixed expenses: Fixed factory overhead Fixed selling and administrative (390,000) (315,000) $49,140 Operating income 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: Activity Engineering Setting un Driver Usage by Model Activity Cost Activity Driver Model 1 Model 2 Model 3 $84,000 Engineering hours 780 78 142 196.000 Setun hours 12.100 13.400 29.142