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Management is surprised by the handbag product line's poor showing and would like to have the product lineSevero S . A . of Sao Paulo,

Management is surprised by the handbag product line's poor showing and would like to have the product lineSevero S.A. of Sao Paulo, Brazll, Is organized Into two divisions. The company's contribution format segmented income
statement (in terms of the Braz"lillan currency, the real, R) for last month is glven below:
Top management can't understand why the Leather Divislon has such a low segment margin when its sales are only
30% less than sales in the Cloth Division. As one step in Isolating the problem, management has directed that the
Leather Dlvision be further segmented into product lines. The following information is avallable on the product Ilines in
the Leather Division:
Analysis shows that R75,000 of the Leather Division's selling and administrative expenses are common to the product
Tines.
Required:
Prepare a contribution format segmented income statement for the Leather Division, with segments defined as
product lines.
Manegement is surprised by the handbag procuct line's poor showing and would lise to heve the productiline
segnerted by market. The following information is avallable about the markets in which the handbag line is sold:
Al of the handbang product line's selling and administrafvo expenses and deprociation are common to the markets in
witch the product is sold. Prepare a cortribution format segmented income statement for the hancoag product ine
wh segments defined as markets.
Refer to the statement prepared in (1) above. The sales meneger wants to run a special promotional campalgn on one
of the product lines over the next month. A marketing study indicales that such a campaign would horease sales of the
Garments product Ine by R217,000 or sales of the shoes product line by R162,000. The campaign would cost R32,000.
a. Compute the increased operating income for these product lines for the expected increased sales.
b. Based on the above results, which product line shoud be chasen?
segmented by market. The following information is avallable about the markets in which the handbag line is sold:
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.
Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campalgn 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 R217,000 or sales of the shoes product line by R162,000. The campalgn would cost R32,000.
a. Compute the increased operating income for these product lines for the expected increased sales.
b. Based on the above results, which product line should be chosen?
Garments
Shoes
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