Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution formet segmented income statement (in terms of the Brazilian currency, the resl, R) for last month is given below. Total Company R4,882, 2.033.2 2.247,28 Divisions Cloth R2,400,000 1,eze, eee 1,338,eee Leather R 1,680,00 963,000 717.830 Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling and administrative Depreciation Total traceable fixed expenses Divisional segrent margin Common fixed expenses Operating income 65e,eee 549,00 261.ad 1.459, cea 589.000 481.no R 187,888 418.ee 328.ee 125.000 856.eee 474.ee 240, ese 228. vee 135.000 623,eae 114,30 R Top mensgement can't understand why the Leather Division has such a low segment margin when its soles are only 30% less than sales in the Cloth Division. As one step in isolating the problem, management hos directed that the Lesther Division be further segmented into product lines. The following information is available on the product lines in the Lesther Division: Leather Division Product Lines Garments Shoes Handbags H510, ege R750,000 R420.00 Sales Traccable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 61, R 41.90 R 30,00 7e R 84.000 R 46,000 R 67, ege Sex R 95.000 R70, cea R38, 55% Analysis shows thet R71,000 of the Leather Division's selling and aciministrative 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 Garmente Shoes Handbage R R! Tracuable fixed expenses: ME Total traceable fixed expenses R Common fixed expenses 2 Management is surprised by the handbag product line's poor showing and would like to have the product line segmented by merket. The following information is available about the markets in which the handbag line is sold: Handba: Markets Domestic Foreign R300,eee R120,000 Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R 51,92 45% R44,00 sa All of the handbag product line's selling and administrative expenses and deprecision 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. Sales Market Domestic Handbago Foreign R Traceable fixed expenses Common fixed expenses: Total common fixed expenses 3. Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campaign on one of the 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 soles. Garments Shoes Increased operating income b. Based on the sbove results, which product line should be chosen? O Garments Shoes