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 Divisional segment margin Common fixed expenses Operating income Total Company R 5,040,000 2, 224, 000 2,816, 000 875,000 636, 000 267,000 Divisions Cloth R 2, 800, 000 1, 150, 000 1,650,000 490,000 400, 000 134, 000 Leather R 2, 240, 000 1,074,000 1, 166, 000 385, 000 236, 000 133,000 1, 778,000 1,024,000 754, 000 1,038, 000 R 626, 000 R 412,000 409, 000 R 629,000 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: Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales Leather Division Product Lines Garments R700,000 Shoes R900,000 Handbags R640, 000 R 67,000 R131, 000 R187,000 R 49,000 R 54,000 R 61,000 R 38,000 R 75,000 60% 30% R 20,000 60% Analysis shows that R72,000 of the Leather Division's selling and administrative expenses are common to the product lines.