Severo SA. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented income statement [in terms ofthe Brazilian currency, the real, R] for last month is given below: Divisions Total Company Cloth Leather Sales R 4,683,366 R 2,433,666 R 1,583,336 Variable expenses 2,633,300 1,3?3,066 963,330 Contribution margin 2,64?,300 1,333,066 71?,330 Traceable 'Fixed expenses: Advertising 553, 300 413, 066 243, 330 Selling and administrative 543,300 323,066 223,330 Depreciation 261,300 126,066 135,330 Total traceable 'Fixed expenses 1,459,300 356,066 563,330 Divisional segment margin 583,300 R 474.1099 R 1141339 Common fixed expenses 461, 300 Operating income R 18?, 300 Top management can't understand why the Leather Division has such a low segmerlt margin when its sales are only 30% 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 Sales R510,633 R753,006 R420,633 Traceable 'Fixed expenses: Advertising R 51,999 R 34,999 R 95,999 Selling and administrative R 41,333 R 46,006 R 70,333 Depreciation R 30,333 R 6?,006 R 38,333 Variable expenses as a percentage of sales T315 56% 55% Analysis shows that R71,000 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 Leather Division Garments Shoes Handbags R R R R 0 0 0 0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 OR OR OR 0 Common fixed expenses: R 02 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 Darlestic Foreign Sales R368, 866 R126, 888 Traceable fixed expenses: Advertising R 51,360 R 44,880 Variable expenses as a percentage of sales 45% 30% 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. Total common fixed expenses [1 is o 3. Refer to the statement prepared in (1} above. The sales manager wants to run a special promotional campaign on one ofthe product lines over the next month. A marketing study indicates that such a campaign would increase sales of the Garments product line by R211,000 or sales of the shoes product line by R156,000_ The campaign would cost R41,000_ a. Compute the increased operating income for these product lines for the expected increased sales. inseoossmsmnsnesmoe E_E_ b. Based on the above results, which product line should be chosen? 0 Garments 0 Shoes