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 Cloth Total Company R 3,825,000 1,889,750 Sales Variable expenses R 2,250,000 1,010,000 Leather R 1,575,000 879,750 Contribution margin 1,935,250 1,248,099 695,250 Traceable fixed expenses: Advertising Selling and administrative Depreciation 592,000 482,000 239,000 350,000 260,000 120,000 242,000 222,000 119,000 Total traceable fixed expenses 1, 313,000 730,000 583,000 Divisional segment margin 622,250 R 510,000 R 112,250 Common fixed expenses 395,000 Operating income R 227,250 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 R325,600 R550,000 R700,000 Sales Traceable fixed expenses Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 65,000 R 35,000 R 24,000 65% R 82,080 R 40,000 R 61,000 50% R 95,000 R 38,000 R 34,000 53% Analysis shows that R109,000 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 R R R 0 0 0 0 Traceable fixed expenses Total traceable fixed expenses 0 0 0 0 OR OR OR Common fixed expenses 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 R250,000 Foreign R75,000 Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R 45,000 44% R50,000 83% 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 0 0 0 Traceable fixed expenses OR OR 0 Common fixed expenses Total common fixed expenses 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 R205,000 or sales of the shoes product line by R150,000. The campaign would cost R35,000 a. Compute the increased operating income for these product lines for the expected increased sales. Garments Shoes Increased operating income R