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 R4,186,000 1,874,760 2,311, 240 Divisions cloth R 2,300,000 1,020,000 1,280,000 Leather R 1,886,000 854,760 1,031, 240 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 760,000 570,000 241,000 1,571,000 740, 240 396,000 R 344, 240 360,000 270,000 121,000 751,000 529,000 400,000 300,000 120,000 820,000 211, 240 R R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 18% 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 R560,000 R750,000 R576,000 Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 86,000 R 36,000 R 25,000 60% R118,000 R41,000 R 62,000 30% R196,000 R42,000 R 33,000 51% Analysis shows that R181,000 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 0 0 0 0 Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling & administrative Depreciation Total traceable fixed expenses Product line segment margin Common fixed expenses: Selling & administrative Divisional segment margin 0 0 0 0 OR OR OR 0 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 R216,000 Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R 46,000 45% R150,000 61% 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 Sales Variable expenses Contribution margin 0 0 0 Traceable fixed expenses: Advertising OR OR 0 Common fixed expenses: Depreciation Selling & administrative Total common fixed expenses Product line segment margin 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 R206,000 or sales of the shoes product line by R151,000. The campaign would cost R36,000. a. Compute the increased operating income for these product lines for the expected increased sales. Garments Shoes Increased operating income