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 $4,335,000$ R $2,550,000$ R $1,785,000$

Variable expenses $2,002,7501,100,000902,750$

Contribution margin $2,332,2501,450,000882,250$

Traceable fixed expenses:

Advertising $790,000440,000350,000$

Selling and administrative $581,000350,000231,000$

Depreciation $257,000129,000128,000$

Total traceable fixed expenses $1,628,000919,000709,000$

Divisional segment margin $704,250$ R $531,000$ R $173,250$

Common fixed expenses $404,000$

Operating income R $300,250$

Top management can$$t understand why the Leather Division 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 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 R $500,000$ R $860,000$ R $425,000$

Traceable fixed expenses:

Advertising R $94,000$ R $126,000$ R $130,000$

Selling and administrative R $44,000$ R $49,000$ R $51,000$

Depreciation R $33,000$ R $70,000$ R $25,000$

Variable expenses as a percentage of sales $65\%40\%55\%$

Analysis shows that R$87,000$ 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.