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 3,690,000 R2,050,000 R1,640,000 Variable expenses 1,270, 700 970,000 800,700 Contribution nargin 1,919,300 1,000,000 839,00 Traceable fixed expenses Advertising 623,000 310,000 313,000 Selling and administrative 438,000 220,000 218,000 Depreciation 231,000 116,000 115,000 Total traceable fixed expenses 1,292,000 646,000 646,000 Divisional segment margin 627,388 R 434,000 R193,300 Common fixed expenses 391,000 R Operating income 236,300 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 Handbags Sales R510,000 R710,000 R420,00 Traceable fixed expenses: Advertising R 81,000 R113,000 R119,000 Selling and administrative R 31,000 R 36,000 R 40,000 Depreciation R 20.000 R 57.000 R 38,888 Variable expenses as a percentage of sales 65 301 614 Analysis shows that R111,000 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 Leather Division Product Line Shoes Garmente Handbags Traceable fixed expenses Total traceable food expenses R R R Common fed 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 Foreign Sales R210,000 R210,000 Traceable fixed expenses: Advertising R 41,000 R 78,000 Variable expenses as a percentage of sales 404 824 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 Domestic Handbags Foreign R R R Traceable fixed expenses R R Common fixed expenses Total common fixed expenses R 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 R201.000 or sales of the shoes product line by R146,000. The campaign would cost R31,000. 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? Garments Shoes