2. Management is surprised by the handbag product line's poor showing and would like to have the product line segmented by market. The following information is available about the markets in which the handbag line is sold: Handbag Markets Domestic Foreign Sales R360,000 R216,000 Traceable fixed expenses: Advertising R 46,000 R150,000 Variable expenses as a percentage of sales 454 61% All of the handbag product line's selling and administrative expenses and depreciation are common to the markets in which the product is sold. Prepare a contribution format segmented income statement for the handbag product line with segments defined as markets Handbags Sales Market Domestic R Foreign R R 0 0 Traceable fixed expenses OR OR Common fixed expenses Total common fixed expenses R 0 Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented income statement (in terms of the Brazilian currency, the real, R) for last month is given below: Divisions Total Company Cloth Leather Sales R 4,186,096 R 2,380,000 R1,886,000 Variable expenses 1,874, 760 1,020,000 854,760 Contribution margin 2,311, 240 1,280,000 1,031, 240 Traceable fixed expenses: Advertising 760,000 360,000 400,000 Selling and administrative 570,000 270,000 300,000 Depreciation 241,000 121,000 120,000 Total traceable fixed expenses 1,571,000 751,000 820,000 Divisional segment margin 740, 240 R 529,000 R 211,240 Common fixed expenses 396,000 Operating income R 344,240 Top management can't understand why the Leather Division has such a low segment margin when its sales are only 18% less than sales in the Cloth Division. As one step in isolating the problem, management has directed that the Leather Division be further segmented into product lines. The following information is available on the product lines in the Leather Division Leather Division Product Lines Garments Shoes Handbags Sales R560,000 R750,000 R576,000 Traceable fixed expenses: Advertising R 86,000 R118,000 R196,000 Selling and administrative R 36,000 R 41,000 R 42,000 Depreciation R 25,000 R 62,000 R 33,000 Variable expenses as a percentage of sales 60% 304 514 Analysis shows that R181,000 of the Leather Division's selling and administrative expenses are common to the product lines. Required: 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. Analysis shows that R181,000 of the Leather Division's selling and administrative expenses are common to the product lines. Required: 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. Leather Division Product Line Shoes Garments Handbags R R R R 0 0 0 Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling & administrative Depreciation Total traceable fixed expenses 0 0 0 0 OR OR OR 0 Common fixed expenses R 0 2. Management is surprised by the handbag product line's poor showing and would like to have the product line segmented by market. The following information is available about the markets in which the handbag line is sold: Handbag Markets Domestic Foreign Sales R360,000 R216,000 Traceable fixed expenses: Advertising R 46,000 R150,000 Variable expenses as a percentage of sales 454 61% All of the handbag product line's selling and administrative expenses and depreciation are common to the markets in which the product is sold. Prepare a contribution format segmented income statement for the handbag product line with segments defined as markets Handbags Sales Market Domestic R Foreign R R 0 0 Traceable fixed expenses OR OR Common fixed expenses Total common fixed expenses R 0 3. Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campaign on one of the product lines over the next month. A marketing study indicates that such a campaign would increase sales of the Garments product line by R206,000 or sales of the shoes product line by R151,000. The campaign would cost R36,000 a. Compute the increased operating income for these product lines for the expected increased sales. Garments Shoes Increased operating income b. Based on the above results, which product line should be chosen? Garments Shoes