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 $250,000 $586,000 $607,000 $1,443,000 Less variable costs of goods sold (90,000) (173,760) (334,400) (598,160) Less commissions (5,200) (36,000) (19,250) (60,450) Contribution margin $154,800 $376,240 $253,350 $784,390 Less common fixed expenses: Fixed factory overhead (405,000) Fixed selling and administrative (291,000) Operating income $88,390 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 $88,000 Engineering hours 750 77 173 Setting up 193,000 Setup hours 12,100 13,100 29,173 Customer service 101,000 Service calls 13,200 1,540 19,173 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 $fill in the blank $fill in the blank $fill in the blank $fill in the blank Less variable cost of goods sold fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank Contribution margin $fill in the blank $fill in the blank $fill in the blank $fill in the blank Less traceable fixed expenses: Engineering fill in the blank fill in the blank fill in the blank fill in the blank Setting up fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank Product margin $fill in the blank $fill in the blank $fill in the blank $fill in the blank Less common fixed expenses: Factory overhead fill in the blank fill in the blank Operating income $fill in the blank
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | $250,000 | $586,000 | $607,000 | $1,443,000 | |||||
| Less variable costs of goods sold | (90,000) | (173,760) | (334,400) | (598,160) | |||||
| Less commissions | (5,200) | (36,000) | (19,250) | (60,450) | |||||
| Contribution margin | $154,800 | $376,240 | $253,350 | $784,390 | |||||
| Less common fixed expenses: | |||||||||
| Fixed factory overhead | (405,000) | ||||||||
| Fixed selling and administrative | (291,000) | ||||||||
| Operating income | $88,390 |
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 | $88,000 | Engineering hours | 750 | 77 | 173 | |||||||||||
| Setting up | 193,000 | Setup hours | 12,100 | 13,100 | 29,173 | |||||||||||
| Customer service | 101,000 | Service calls | 13,200 | 1,540 | 19,173 |
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 | $fill in the blank | $fill in the blank | $fill in the blank | $fill in the blank |
| Less variable cost of goods sold | fill in the blank | fill in the blank | fill in the blank | fill in the blank |
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | |
| Contribution margin | $fill in the blank | $fill in the blank | $fill in the blank | $fill in the blank |
| Less traceable fixed expenses: | ||||
| Engineering | fill in the blank | fill in the blank | fill in the blank | fill in the blank |
| Setting up | fill in the blank | fill in the blank | fill in the blank | fill in the blank |
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | |
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | |
| Product margin | $fill in the blank | $fill in the blank | $fill in the blank | $fill in the blank |
| Less common fixed expenses: | ||||
| Factory overhead | fill in the blank | |||
| fill in the blank | ||||
| Operating income | $fill in the blank |
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