Severo SA 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 4,410,000 2,070,600 2,339,400 Divisions Cloth Leather R2,450,00 R 1,960,000 1,050,000 990,63 1,370,000 969,400 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 763,000 559.000 253, 1,575,000 764,400 402,000 362,400 420,00 330,000 127,000 372.00 493,000 343,00 229,000 126.000 608,00 271,400 R R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 20% 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 R520,000 R900,000 R$40,000 Traceable fixed expenses Advertising R 92,000 R124,000 R127.000 Cantes DA 075 A Top management can't understand why the Leather Division has such a low segment margin when its sales are only 20% 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 Garents Shoes Handbags R520,000 R900,600 R540,000 R 92,000 R124,600 R127,000 R 42,000 R 47,600 R 75,000 R 31,000 R 68,000 R 27,000 68% 40% 59% Analysis shows that R65,000 of the Leather Division's selling and administrative expenses are common to the produkt lines. Required: 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. Product Line Leather Division Gamments Shoes Handbags R R Sales Variable expenses Contribution margin Traceable fixed expenses Advertising 0 0 0 0 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 . Handbags Sales Market Domestic Foreign R R R Traceable foxed expenses D. R R Common fixed expenses Total common foed expenses 3. Refer to the statement prepared in (1) above the sales manager wants 10 nin a special promotional camnaian on one of the product Prey 1 of 4 !!! Next > 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 R212,000 or sales of the shoes product line by R157,000. The campaign would cost R42,000. o. Compute the increased operating income for these product lines for the expected increased sales. Shoes Increased operating income Garments RI b. Based on the above results, which product line should be chosen? Garments O Shoes
