I worked all of this except for finding the amount added to operating income for question 2 and 3. Can you please show computations use to find the answer. Thank you!

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		$245,000		$554,000		$654,500		$1,453,500
Less variable costs of goods sold		(95,500)		(163,640)		(364,800)		(623,940)
Less commissions		(4,000)		(29,500)		(23,500)		(57,000)
Contribution margin		$145,500		$360,860		$266,200		$772,560
Less common fixed expenses:
Fixed factory overhead								(420,000)
Fixed selling and administrative								(291,000)
Operating income								$61,560

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 companys 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		$75,000			Engineering hours		780				76				144
Setting up		196,000			Setup hours		12,700				12,000				29,144
Customer service		111,000			Service calls		13,600				1,480				19,144

In addition, Model 1 requires the rental of specialized equipment costing $24,500 per year.

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
Sales	245000	554000	654500	1453500
Less variable cost of goods sold	-95500	-163640	-364800	-623940
Less commissions	-4000	-29500	-23500	-57000
Contribution margin	145500	360860	266200	772560
Less traceable fixed expenses:
Engineering	-58500	-5700	-10800	-75000
Setting up	-46230	-43680	-106090	-196000
Equipment rental	-24500			-24500
Customer service	-44108	-4800	-62090	-110998
Product margin	-27838	306680	87220	366062
Less common fixed expenses:
Factory overhead				-124500
Selling and admin. expense				-180000

Operating Income: 61562

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 1 will add $_____________to operating income

3. What if Reshier Company can only avoid 186 hours of engineering time and 5,200 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 $_____________to operating income