60.1K

Verified Solution

Link Copied!

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 R3,500,000 1,721,000 1,779,000 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 Divisions Cloth Leather R2,000,000 R1,500,000 960,000 761,000 1,040,000 739,000 300,000 312,000 210,000 217,000 115,000 114,000 625,000 643,000 R 415,000 R 96,000 612,000 427,000 229,000 1,268,000 511,000 390,000 R 121,000 Top management can't understand why the Leather Division has such a low segment margin when its sales are only 25% 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 R700,000 R300,000 R 80,000 R112,000 R120,000 R 30,000 R 35,000 R 42,000 R 25,000 R 56,000 R 33,000 65% 404 52% Analysis shows that R110,000 of the Leather Division's selling and administrative expenses are common to the product lines. Analysis shows that R110,000 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. Leather Division Product Line Shoes Garments Handbags R R R R 0 0 0 0 Sales Variable expenses Contribution margin Traceable fixed expenses: Advertising Selling & administrative Depreciation Total traceable fixed expenses Product line segment margin Common fixed expenses: Seling & administrative Divisional segment margin 0 0 0 0 0 OR OR OR 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 Sales R200,000 R100,000 Traceable fixed expenses: Advertising R 40,000 R 80,000 Variable expenses as a percentage of sales 43% 78% 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 Sales (Variable expenses Contribution margin Traceable fixed expenses: Advertising Market segment margin Common fixed expenses: Selling & administrative Depreciation Total common fixed expenses Product line segment margin OR OR 0 0 R 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 R200,000 or sales of the shoes product line by R145,000. The campaign would cost R30,000. a. Compute the increased operating income for these product lines for the expected increased sales. Garments Shoes Increased operating income R

Answer & Explanation Solved by verified expert

See Answer