Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented income statement terms of the Brazilian currency, the real, R) for last month is given below. Total Company R 4.590,000 2,099.00 2,490.00 Divon Cloth Lath K 2.700.000 1.390.000 1,130.000 369.00 1.570.000 92000 Sales Variable expenses Contribution angin Traceable fixed Advertising selling and distrative Depreciation Total traceable fixed expenses Divisional segment margin Como tired expenses Operating inoce 785.000 614,000 263.000 1,662.000 28,300 407.000 421.300 470.000 380,000 132.000 982,000 SBB,000 315.000 234.000 121.000 600.000 260.300 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 camente Shoes Handbags Bales 670,000 R200,000 R420.000 Trache fixed expenses Advertising 97.000 W 84,000 134,000 Selling and administrative 47,000 52.000 10.000 Depreciation 36,000 11.000 * 22,000 Variable expenses as a percentage of sales 654 40 515 per peccantano wake ON 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 Carmente Podine Shoes RO BO Tractadens Total traceab ponte R R Commande 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 6 2. Management is surprised by the handbag product line's poor showing and would to have the product line segmented by market. The following information is available about the markets in which the handbag line is sold Band 0.000 370.000 Train Time 2.000 1100.000 Variable space of sales IF Y All of the handbag product line's seting and administrative expenses and depreciation are common to the marvets in which the products sold Prepare a contribution format segmented income statement for the handbagsoutline with segments defined mark N'T AS Camino de Tutama 15 Totalcommon des 3. Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campaign on one of the product Ines over the next month. A marketing study indicates that such a campaign would increase sales of the Garments prochetine by R217000 or sales of the shoes product line by R162,000. The campaign would cost R32,000 a. Compute the increased Operating income for these product lines for the expected increased sales Increased tingin b. Based on the above results, which product line should be chosen Garments Shoes
