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shier Company can only avoid 178 hours c resented in Requirement 2? Which alternat: dollar. will add $ to

shier Company can only avoid 178 hours c resented in Requirement 2? Which alternat: dollar. will add $ to

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3. What if Reshier Company can only avoid 178 hours of engineering time and 5,300 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 answen to the nearest dollar. will add $ to operating income
Transcribed Image Text:3. What if Reshier Company can only avoid 178 hours of engineering time and 5,300 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 answen to the nearest dollar. will add $ to operating income
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 $235,000 $558,000 $644,000 $1,437,000 Less variable costs of goods sold (96,500) (167,160) (342,000) (605,660) Less commissions (5,700) (37,500) (21,750) (64,950) Contribution margin $132,800 $353,340 $280,250 $766,390 Less common fixed expenses: Fixed factory overhead (375,000) Fixed selling and administrative (295,000) Operating income $96,390 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 $77,000 Engineering hours 730 77 193 Setting up 177,000 Setup hours 12,600 12,900 29,193 Customer service 119,000 Service calls 14,300 1,420 19,193
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 $235,000 $558,000 $644,000 $1,437,000 Less variable costs of goods sold (96,500) (167,160) (342,000) (605,660) Less commissions (5,700) (37,500) (21,750) (64,950) Contribution margin $132,800 $353,340 $280,250 $766,390 Less common fixed expenses: Fixed factory overhead (375,000) Fixed selling and administrative (295,000) Operating income $96,390 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 $77,000 Engineering hours 730 77 193 Setting up 177,000 Setup hours 12,600 12,900 29,193 Customer service 119,000 Service calls 14,300 1,420 19,193
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