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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:

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:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Keep-Or-Drop Decision, Alternatives, Relevant Costs

 

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 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 $ to operating income 3. What if Reshier Company can only avoid 190 hours of engineering time and 5,400 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. will add $ to operating income $ $ 00000 000
Transcribed Image Text: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 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 $ to operating income 3. What if Reshier Company can only avoid 190 hours of engineering time and 5,400 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. will add $ to operating income $ $ 00000 000
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 $230,000 $590,000 $644,000 $1,464,000 (99,000) (171,120) (341,200) (611,320) Less variable costs of goods sold Less commissions (5,700) (31,500) (23,000) (60,200) Contribution margin $125,300 $387,380 $279,800 $792,480 Less common fixed expenses: Fixed factory overhead Fixed selling and administrative (395,000) (303,000) $94,480 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: Driver Usage by Model Activity Model 1 Model 2 Model 3 142 Engineering Activity Cost Activity Driver Engineering hours Setup hours Service calls $88,000 194,000 102,000 Setting up 780 12,800 14,200 78 12,900 29,142 Customer service 1,480 19,142 In addition, Model 1 requires the rental of specialized equipment costing $23,500 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".
Transcribed Image Text: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 $230,000 $590,000 $644,000 $1,464,000 (99,000) (171,120) (341,200) (611,320) Less variable costs of goods sold Less commissions (5,700) (31,500) (23,000) (60,200) Contribution margin $125,300 $387,380 $279,800 $792,480 Less common fixed expenses: Fixed factory overhead Fixed selling and administrative (395,000) (303,000) $94,480 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: Driver Usage by Model Activity Model 1 Model 2 Model 3 142 Engineering Activity Cost Activity Driver Engineering hours Setup hours Service calls $88,000 194,000 102,000 Setting up 780 12,800 14,200 78 12,900 29,142 Customer service 1,480 19,142 In addition, Model 1 requires the rental of specialized equipment costing $23,500 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".
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