Severo SA of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented income statement

terms of the Brazilian currency, the real, R$)$ for last month is given below

Divisions

Sales

Total Company R$3,825,000$

Cloth R $2,250,000$

Leather $1,575,000$

Variable expenses

$1,889,750$

$1,010,000$

$879,750$

Contribution margin

$1,935,250$

$1,240,000$

$695,250$

Trackable $($fixed expenses

Advertising

$592,000$

$350,000$

$242,000$

Selling and administrative

$482,000$

$260000$

$222000$

Depreciation

$239,000$

$120,000$

$119,000$

Total traceable fixed expenses

$1,313,000$

$730,000$

$583,000$

Divisional segment margin

$622,250$

R $510,000$

R $112,750$

Common Fixed expenses

$395,000$

Operating income

R $227,250$

Top management can't understand why the Leather Division has such a low segment mangin when its sales are only $30\%$ less Thurs sales in the Cloth Division. As one step in isolating the problem, management has directed that the Leather Divtsion be further segmented into product lines. The following information is available on the product lines in the Leather DivssION

Sales

Garments R $550000$

Shoes R $700000$

Handbags R $325000$

Traceable fixed expenses

Advertising

R $65000$

R $82000$

R $95000$

Selling and administrative

R $35000$

R $82000$

R $95000$

Deprecation

R $24000$

R $61000$

R $34000$

Variabile expenses a percentage of sales

$65\%$

$50\%$

$53\%$

Analysis shows that R $109000$ of the Leather Division's setting and administrative experises are common to the product lines

Required

Prepare & contusion format segmented come statement for the Leather Divison with gets de product$1.$ Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines

$2.$ Management is surprised by market The following information the haridbag product ine's poor showing and would like to have the product the segmented by is available about the markets in which the handbag line is sold

Sales

Domestic R $250000$

Foreign R $75000$

Traceable fixed expenses

Advertising

R $45000$

R $50000$

Variable expenses as a percentage of sales

$44\%$

$83\%$

All of the handbag product lines setting and administrative product is sold Prepare a contributton format segmented income statement tive expenses and depreciation markets The the han are common to the markets in which the andbag product ine with segmenas defined asAll of me nandbag product ane's sering and administrative expenses and depreciation are common to me markets in which the product is sold Prepare a contribution format segmented income statement for the handbag product line with segments defined as markets

$3.$ Refer to $1$ the statement prepared in $(1)$ above The sales manager wants to Iines over the next month. A marketing study indicates that such a campaign would increase sales of the garments producg line by R$205000$ or sales of the shoes product line by R$150000$ The campaign would cost R$35000$

Compute the increased operating income for these product lines for the expected increased sales

Based on the above results, which product line should the chosen

Garments

Shoes