Answer Happy

Ch 17 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 3 Model 1 Sales Less variable costs of goods sold Less commissions $255,000 (85,000) (5,000) $165,000 Model 2 $594,000 (176,840 (25,000) $392,160 $647,000 (339,200) (21,000) $286,800 Total $1,496,000 (601,040) (51,000) $843,960 Contribution margin Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income (425,000) (307,000) $111,960 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 Check My Work Previous
Ch 17 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. Sales Less variable costs of goods sold Less commissions Model 1 $255,000 (85,000) (5,000) $165,000 Model 2 $594,000 (176,840) (25,000 $392,160 Model 3 $647,000 (339,200) (21,000) $286,800 Total $1,496,000 (601,040) (51,000) $843,960 > Contribution margin Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income (425,000) (307,000) $111,960 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
Ch 17 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 Model 1 Model 2 Model 3 Activity 74 146 780 Activity Cost Activity Driver $76,000 Engineering hours 181,000 Setup hours 105,000 Service calls 12,000 12,800 Engineering Setting up Customer service 29,146 14,400 1,520 19,146 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
Ch 17 Reshier Company Segmented Income Statement Model 1 Model 2 Model 3 Total Sales Less variable cost of goods sold Less commissions Contribution margin Less traceable fixed expenses: Engineering Setting up Equipment rental Customer service Product margin Less common fixed expenses: Factory overhead Selling and admin. expense Operating income Feedback
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 184 hours of engineering time and 5,050 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 Feedback Check My Work 2. Do any of the products have a negative product margin? Review what you have learned in the chapter. What is the amount of the product margin?
Keep Or-Drop Dedsion, 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 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 $255,000 (85,000) (5,000) $165,000 Model 2 $594,000 (176,840) (25,000) $392,160 Model 3 $647,000 (339,200) (21,000) $286,800 Total $1,496,000 (601,040) (51,000) 5843,960 Sales Less variable costs of goods sold Les commissions Contribution margin Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income (425,000) (307,000) $111,960 While all models have positive contribution margins, Rashier 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 $76,000 Engineering hours 780 74 146 Setting up 181,000 Setup hours 12,000 12,800 29,146 Customer service 105,000 Service calls 14.400 1,520 19.146 In addition, Model requires the rental of specialized equipment costing $24,500 per year.
Ch 17 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 $1,496,000 $255,000 (85,000) (5,000) $165,000 $594,000 (176,840) (25,000) $147,000 (339,200) (21,000) $286,800 (601,040) (51,000) $943,960 $392,160 Sales Less variable costs of goods sold Less commissions Contribution margin Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income > (425,000) (307,000) $111,960 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 $76,000 Engineering hours 780 74 146 Setting up 181,000 Setup hours 12,000 12,800 29,146 Customer service 105,000 Service calls 14,400 1,520 19,146 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. Il amount box does not require an entry, leave it blank or enter 0 Check My Work
Model 1 $594,000 Sales Less variable costs of goods sold Less commissions $255,000 (85,000) (5,000) $165,000 (176,840) (25,000) $392,160 5047,000 (339,200) (21,000) $286,800 $1,496,000 (601,040) (51,000) $843,960 Contribution margin Less common fixed expenses: Fixed factory overhead Fixed selling and administrative Operating income (425,000) (307,000) $111,960 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: 20 Driver Usage by Model Model 1 Model 2 Model 3 780 74 146 Activity Engineering Setting up Customer service Activity Cost Activity Driver $76,000 Engineering hours 181,000 Setup hours 105,000 Service calls 29,146 12.000 14,400 12,800 1.520 19,146 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" Check My Work Dros
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 "o". Reshier Company Segmented Income Statement Model 1 Model 2 255.000 594,000 Model 3 Total Sales 647,000 1,496,000 Less variable cost of goods sold ✓ 85,000 176,840 ✓ 339,200 601.040 Less commissions 5,000 | 25,000 ✓ 21,000 ✓ 51.000 165.000 392.160 286,800 843.960 Contribution margin Less traceable fixed expenses: Engineering ✓ Setting up ✓ Equipment rental 59.280 5,624 ✓ 11,096 76,000 40,262 ✓ 42.947 97.791 181,000 24,500 0 0 ✓ 24,500 Customer service 43.119 4.551 S7.330 105.000 -2.161 339,038 120.583 457,460 Product margin Less common fixed expenses: Factory overhead Selling and admin, expense 143,500 202.000 ✓ Operating income 111.960 Feedback Check My Work
Ch 17 Check My Work 1. Review what you have learned about segmented income statements in the chapter. To determine the traceable fixed costs, you will need to compute the activity rates for each activity to assign the costs of the activities to each product. Common fixed expenses are not traceable to the segments. They would remain even if one of the segments were eliminated 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 $ 2,161 V to operating income 3. What if Reshier Company can only avoid 184 hours of engineering time and 5,050 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 ✓ will add 17,450 x to operating income PC Feedback Check My Work 2. Do any of the products have a negative product margin? Review what you have leamed in the chapter. What is the amount of the product margin? 3. Compute new activity rates for each activity to assign the costs of the activities to the product in question. What is the new product margin See Example 17.2. Feedback