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 Sales $240,000 $566,000 $656,500 Total $1,462,500 Less variable costs of goods sold (89,500) (167,160) (342,400) (599,060) Less commissions (5,200) (34,000) (23,750) (62,950) Contribution margin $145,300 $364,840 $290,350 $800,490 Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income (405,000) (311,000) $84,490 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 Engineering Activity Cost Activity Driver Model 1 Model 2 Model 3 $90,000 Setting up 195,000 Engineering hours Setup hours 770 79 151 12,500 12,900 29,151