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 R3,500,000 Divisions Cloth Leather R 2,000,000 R 1,500,000 Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling and administrative. Total traceable fixed expenses Depreciation Divisional segment margin Common fixed expenses Operating income 1,721,000 1,779,000 960,000 1,040,000 761,000 739,000 612,000 300,000 312,000 427,000 210,000 217,000 229,000 115,000 114,000 1,268,000 625,000 643,000 511,000 390,000 R 415,000 R 96,000 R 121,000 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: Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales Leather Division Product Lines Garments R500,000 Shoes R700,000 Handbags R300,000 R 80,000 R 30,000 R 25,000 65% R112,000 R 35,000. R 56,000 R120,000 R 42,000 R 33,000 40% 52% Analysis shows that R110.000 of the Leather Division's selling and administrative expenses are common to the product lines.