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: Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling and administrative Depreciation Total traceable fixed expenses i Divisional segment margin Common fixed expenses Operating income Total Company R 4,070,000 Divisions Cloth Leather R 2,200,000 R 1,870,000 1,969,000 2,101,000 790,000 1,060,000 909,000 1,140,000 961,000 400,000 390,000 590,000 310,000 280,000 249,000 125,000 124,000 1,629,000 835,000 794,000 472,000 400,000 72,000 R 305,000 R 167,000 Top management can't understand why the Leather Division has such a low segment margin when its sales are only 15% 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: Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales Leather Division Product Lines Garments R500,000 Shoes R770,000 Handbags R600,000 R 90,000 R 40,000 R 29,000 R122,000 R178,000 R 45,000 R 62,000 R 66,000 R 29,000 60% 30% 631 Analysis shows that R133,000 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 ook int Traceable fixed expenses: rences Total traceable fixed expenses Common fixed expenses: Leather Division Garments Shoes Handbags R R R R R R R 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: Sales Traceable fixed expenses: Advertising Handbag Markets. Foreign R250,000 Domestic R350,000 R 50,000 R128,000 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 R350,000 Sales Foreign R250,000 Traceable fixed expenses Advertising R 50,000 R128,000 Variable expenses as a percentage of sales 48 844 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. Traceable fixed expenses Common fixed expenses: Total common fixed expenses R Sales Market Handbags Domestic Foreign R R R R 3. Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campaign on one of the produc lines over the next month. A marketing study indicates that such a campaign would increase sales of the Garments product line by R210,000 or sales of the shoes product line by R155,000. The campaign would cost R40,000. a. Compute the increased operating income for these product lines for the expected increased sales. Increased operating income Garments Shoes b. Based on the above results, which product line should be chosen? O Garments O Shoes