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 R 4,070, 800 1,969,000 2,101,000 Divisions Cloth Leather R 2,200,000 R1,870,000 1,060,000 909,000 1,140,000 961,000 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 790,000 590,000 249,000 1,629,000 472,000 400,000 R 72,000 400,000 319,000 125,000 835,000 305,000 390,000 280,000 124,000 794,00 167,000 R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 15% 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 Shoes Handbags R500,000 R770,000 R600,000 R 90,000 R122,000 R178,000 R 40,000 R 45,000 R 62,000 R 29,000 R 66,000 R 29,000 Gex 63% Analysis shows that R133,000 of the Leather Division's selling and administrative expenses are common to the product lines 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 Traceable foxed expenses 0 0 Total traceable fixed expenses 0 ola OR 0 OR OR 0 Common fixed expenses R 0 2. 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 Domestic Foreign R350,000 R250,000 Sales Traceable Fixed expenses: Advertising Variable expenses as a percentage of sales R 50,000 48% R128,000 84% 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 Sales Market Domestic Handbags Foreign R R 0 0 0 Traceable fored expenses OR OR 0 Common foxed expenses Total como foed expenses 0 0 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 R210,000 or sales of the shoes product line by R155.000. The campaign would cost R40,000 a. Compute the increased operating income for these product lines for the expected increased sales Garments Shoes Increased operating income b. Based on the above results, which product line should be chosen? O Garments Shoes