Severo S$.$A$.$ of Sao Paulo, Brazll, Is organized Into two divisions. The company's contribution format segmented income

statement $($in terms of the Braz an currency, the real, R$)$ for last month is given below:

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 avallable on the product lines in

the Leather Division:

Analysis shows that R$75,000$ of the Leather Division's selling and administratlve expenses are common to the product

Ties.

Required:

Prepare a contribution format segmented income statement for the Leather Division, with segments defined as

product lines.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 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 R$217,000$ or sales of the shoes product line by R$162,000.$ The campalgn would cost R$32,000.$

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