CE Severo SA. 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 R 4,500,000 2,924,800 Sales Variable expenses cloth R 2,500,000 1,090,000 Leather R 2,000,000 934,800 2,475,200 1,410,000 1,065,200 Contribution margin Traceable fixed expenses: Advertising Selling and administrative Depreciation 821,000 570,000 255,000 430,000 340,000 128,000 391,000 230,000 127,000 Total traceable fixed expenses 1,646,000 898,000 748,00 829, 200 R 512,000 R Divisional segment margin 317,200 Common fixed expenses 403,000 R Operating income 426,200 0 Top management can't understand why the Leather Division has such a low segment margin when its sales are only 20% 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 Sales Handbags R630,000 R830,000 R540,000 Traceable fixed expenses: Advertising R 93,800 R125,000 R173,000 Selling and administrative R 43,000 R 48,000 R 45,000 Depreciation R32,000 R 69,000 R 25,000 Variable expenses as a percentage of sales 60x 30x 57% Analysis shows that R94,000 of the Leather Division's selling and administrative expenses are common to the product lines Required Required: 1. Prepare a contribution format segmented Income statement for the Leather Division, with segments defined as product lines Product Line Leather Division Gamments shoes Hands R R R 0 0 0 0 Tradeable fed expenses Total traceable fixed expenses 0 0 0 ORI OR OR Common fixed expenses 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 R39e, een Foreign R150,00 Sales Traceable fixed expenses Advertising variable expenses as a percentage of sales R 53, see 52% R120,000 70% All of the handbag product line's seling 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 Domestic Handbags Foreign 0 Traceable Exed expenses OR OIR Comonfocad expenses Tola combined expenses B 0 PO 1 of 3 Next > 3 o i ere to search 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 R213,000 or sales of the shoes product line by R158,000. The campaign would cost R43,000 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? O Garments Shoes of 3 !!! Next >