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: Divisions Total Company Cloth R 4,590,Bee R2,7ee,eee 2,899,7ee 1,130,eee Sales Variable expenses Leather R 1,890, eee 969,700 Contribution margin 2,490,300 1,578, eee 928,300 Traceable fixed expenses: Advertising Selling and administrative Depreciation 785,eee 614, eee 263,800 478,eee 382.eee 132.ee 315,eee 234.ee 131,eee Total traceable fixed expenses 1,662,eee 982.eee 682.ee Divisional segment margin 828,300 R 588.00 R 240,300 Common fixed expenses 4e7.eee Operating income R 421,300 Top management can't understand why the Leather Division has such a low segment 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 R678.cee Shoes R800.000 Handbags R420.ece Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 97,eee R 47,600 R 36,000 65% R 84,620 R 52.ee R 73,eee 48x R134,600 R 60.eee R 22,eee 51% Analysis shows that R75.000 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 RI RI Traceable fixed expenses Total traceable fixed expenses RI R 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 market. The following Information is available about the markets in which the handbag line is sold: Handbag Markets Domestic R350,eee Foreign R 78.cee Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R 25,000 R109,eee 86% 44% 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 HandbagsDomestic Foreign R Traceable fixed expenses: R Common fixed expenses Total common fixed expenses R 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 R217,000 or sales of the shoes product line by R162000. The campaign would cost R32,000. a. Compute the increased operating Income for these product lines for the expected Increased sales. Shoes Garments Increased operating income FL 162 b. Based on the above results, which product line should be chosen? O Garments O Shoes