Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented income statement on terms of the Brazilian currency, the real, R) for last month is given below: Total Company R 3.995,000 1,955,000 2,040,000 Divisions cloth Leather R 2,350,000 R1,645,000 1.030.000 925,000 1,320,000 720,000 Sales Variable expenses Contribution margin Traceable fixed expenses Advertising Selling and administrative Depreciation Total traceable fixed expenses Divisional segment margin Connon fixed expenses Operating income 600,000 504,000 243,000 1,347,000 693,000 397,000 R 296,000 370,000 210,000 122,000 772,000 R$48,000 230,000 224,000 121,000 575,030 145,000 R 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 Garnents Shoes Handbags R500,000 R770,000 R375,000 Sales Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 57,000 R 37,000 R 26,000 6ex R 81,000 R 42,000 R 63,630 SOK R 92,000 R 45, oee R 32,000 64% Analysis shows that R100.000 of the Leather Division's selling and administrative expenses are common to the product lines. 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: Handha Markets Domestic Foreign R200,000 R175,000 Sales Traceable fixed expenses Advertising Variable expenses as a percentage of sales R 47,000 43% R 45,000 88 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 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 R 0 0 0 Sales Variable expenses Contribution margin Traceable fixed expenses Advertising Soling & administrative Common fixed expenses Depreciation OR OR 0 Total common foxed expenses 0 0 R
