Analysis shows that R71,000 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. Product Line Leather Division Garments Shoes Handbags Sales R R R R Variable expenses 0 0 0 0 Traceable fixed expenses: 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 R360,000 R157,500 Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R 56,000 60% R 65,000 838 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. Sales Market Handbags Domestic Foreign R R R 0 0 0 Traceable fixed expenses: OR OR 0 Common fixed expenses: Total common fixed expenses 0 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 R216,000 or sales of the shoes product line by R161,000. The campaign would cost R31,000. a. Compute the increased operating income for these product lines for the expected increased sales. Garments Shoes Increased operating income RI R b. Based on the above results, which product line should be chosen? Garments Shoes 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: Total Company R 4,637,500 2,171,725 2,465,775 Divisions cloth R 2,650,000 1,120,000 1,530,000 Leather R 1,987,500 1,051,725 935, 775 Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling and administrative Depreciation Total traceable fixed expenses Divisional segment margin Common fixed expenses Operating income 805,000 603,000 261,000 1,669,000 796, 775 406,000 R 390, 775 460,000 370,000 131,000 961,000 569,000 345,000 233,000 130,000 708,000 227,775 R R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 25% 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 R660,000 R810,000 R517,500 Sales Traceable fixed expenses : Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 96,000 R46,000 R 35,000 70% R128,000 R 51,000 R 72,000 30% R121,000 R 65,000 R 23,000 67% Analysis shows that R71,000 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
