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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: Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales Handbag Markets Foreign R 85,000 R149,000 80% Domestic R340,000 R 30,000 45% 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 a markets.

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: Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales Handbag Markets Foreign R 85,000 R149,000 80% Domestic R340,000 R 30,000 45% 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 a markets.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: 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 Sales Traceable fixed expenses: Total Company R 4,675,000 2,213,000 2,462,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 810,000 625,000 265,000 1,700,000 762,000 408,000 R 354,000 Traceable fixed expenses: 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: Total traceable fixed expenses Common fixed expenses: Divisions Cloth R 2,750,000 1,140,000 1,610,000 R R 480,000 390,000 133,000 1,003,000 R 607,000 R Leather Division Garments R680,000 R 66,000 R 48,000 R 37,000 65% Analysis shows that R94,000 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. 0 Leather R 1,925,000 1,073,000 852,000 Leather Division Product Lines Handbags R425,000 R 0 OR 0 Garments 330,000 235,000 132,000 697,000 155,000 Shoes R820,000 R 85,000 R 53,000 R 74,000 0 R 50% 0 OR R179,000 R 40,000 R 21,000 52% Product Line Shoes 0 R 0 OR Handbags 0 0 0
Transcribed Image Text: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: 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 Sales Traceable fixed expenses: Total Company R 4,675,000 2,213,000 2,462,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 810,000 625,000 265,000 1,700,000 762,000 408,000 R 354,000 Traceable fixed expenses: 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: Total traceable fixed expenses Common fixed expenses: Divisions Cloth R 2,750,000 1,140,000 1,610,000 R R 480,000 390,000 133,000 1,003,000 R 607,000 R Leather Division Garments R680,000 R 66,000 R 48,000 R 37,000 65% Analysis shows that R94,000 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. 0 Leather R 1,925,000 1,073,000 852,000 Leather Division Product Lines Handbags R425,000 R 0 OR 0 Garments 330,000 235,000 132,000 697,000 155,000 Shoes R820,000 R 85,000 R 53,000 R 74,000 0 R 50% 0 OR R179,000 R 40,000 R 21,000 52% Product Line Shoes 0 R 0 OR Handbags 0 0 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: Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales Traceable fixed expenses: Common fixed expenses: Total common fixed expenses 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. Increased operating income R R O Garments O Shoes R Garments Domestic R340,000 R 30,000 Handbags R Handbag Markets Foreign R 85,000 R149,000 0 Shoes 0 0 R OR 45% Sales Market Domestic 80% b. Based on the above results, which product line should be chosen? 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 R218,000 or sales of the shoes product line by R163,000. The campaign would cost R33,000. a. Compute the increased operating income for these product lines for the expected increased sales. 0 R OR Foreign 0 0
Transcribed Image Text: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: Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales Traceable fixed expenses: Common fixed expenses: Total common fixed expenses 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. Increased operating income R R O Garments O Shoes R Garments Domestic R340,000 R 30,000 Handbags R Handbag Markets Foreign R 85,000 R149,000 0 Shoes 0 0 R OR 45% Sales Market Domestic 80% b. Based on the above results, which product line should be chosen? 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 R218,000 or sales of the shoes product line by R163,000. The campaign would cost R33,000. a. Compute the increased operating income for these product lines for the expected increased sales. 0 R OR Foreign 0 0
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