Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The companys contribution format segmented income statement (in terms of the Brazilian currency, the real, R) for last month is given below:

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 R 3,850,000 1.870.000 1,980,000 Divisions Cloth R 2.200.000 1.050,000 1. 150,000 Leather R 1.650,000 820,000 830,000 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 692.000 526, 000 247,000 1, 465,000 515, 000 399.000 116.000 390,000 300,000 124 000 814,000 336,000 302, 000 226,000 123,000 651,000 179,000 R R R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 25% 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 R 500.000 R 800.000 R 350.000 Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 59,000 R 39,000 R 28,000 65% R 121,000 R 44.000 R 65,000 40% R 122.000 R 60,000 R 30,000 50% Analysis shows that R83,000 of the Leather Division's selling and administrative expenses are common to the product lines. 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 R300,000 R 50.000 Traceable fixed expenses: Advertising R 49,000 R 73.000 Variable expenses as a percentage of sales 45% 80% 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. Handbags Sales Market Domestic R Foreign R R Traceable fixed expenses: R R Common fixed expenses Total common fixed expenses R