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: Divisions Total Cloth Company R 4,420,000 2,103,500 Leather R 2,600,000 1,110,000 Sales R 1,820,000 993,500 Variable expenses Contribution margin 2,316,500 1,490,000 826,500 Traceable fixed expenses: Advertising Selling and administrative 708,000 450,000 258,000 592,000 360,000 232,000 Depreciation 259,000 130,000 129,000 Total traceable fixed 1,559,000 940,000 619,000 expenses Divisional segment margin 757,500 R 550,000 R 207,500 Common fixed expenses 405,000 Operating income R 352,500 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 Garments Shoes Handbags R370,000 Sales R650,000 R800,000 Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a R 70,000 R 45,000 R 34,000 R 86,000 R 50,000 R 71,000 R102,000 R 69,000 R 24,000 60% 50% 55% percentage of sales Analysis shows that R68,000 of the Leather Division's selling and administrative expenses are common to the product lines.
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: Divisions Total Cloth Company R 4,420,000 2,103,500 Leather R 2,600,000 1,110,000 Sales R 1,820,000 993,500 Variable expenses Contribution margin 2,316,500 1,490,000 826,500 Traceable fixed expenses: Advertising Selling and administrative 708,000 450,000 258,000 592,000 360,000 232,000 Depreciation 259,000 130,000 129,000 Total traceable fixed 1,559,000 940,000 619,000 expenses Divisional segment margin 757,500 R 550,000 R 207,500 Common fixed expenses 405,000 Operating income R 352,500 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 Garments Shoes Handbags R370,000 Sales R650,000 R800,000 Traceable fixed expenses: Advertising Selling and administrative Depreciation Variable expenses as a R 70,000 R 45,000 R 34,000 R 86,000 R 50,000 R 71,000 R102,000 R 69,000 R 24,000 60% 50% 55% percentage of sales Analysis shows that R68,000 of the Leather Division's selling and administrative expenses are common to the product lines.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Please help ASAP, Thank You!
Transcribed Image Text:Sales Market
Handbags
Domestic
Foreign
R
R
Traceable fixed expenses:
R
R
Common fixed expenses:
Total common fixed expenses
Required:
1. Prepare a contribution format segmented income statement for the Leather Division,
with segments defined as product lines.
Product Line
Leather
Garments
Shoes
Handbags
Division
Sales
R
R
R
R
Traceable fixed expenses:
Total traceable fixed expenses
R
R
R
Common fixed expenses:
R
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
R70,000
Sales
Traceable fixed expenses:
R300,000
Advertising
Variable expenses as a percentage
of sales
R 55,000
R47,000
48%
85%
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.
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 R215,000 or sales of the shoes product line by R160,000. 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
b. Based on the above results, which product line should be chosen?
O Shoes
O Garments
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:
Divisions
Total
Company
R 4,420,000 R 2,600,000 R1,820,000
2,103,500
Cloth
Leather
Sales
Variable expenses
1,110,000
993,500
Contribution margin
2,316,500
1,490,000
826,500
Traceable fixed
expenses:
Advertising
Selling and
administrative
708,000
450,000
258,000
592,000
360,000
232,000
Depreciation
259,000
130,000
129,000
Total traceable fixed
1,559,000
940,000
619,000
expenses
Divisional segment
margin
757,500
R
550,000 R 207,500
Common fixed expenses
405,000
Operating income
R 352,500
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
Garments
Shoes
Handbags
R370,000
Sales
R650,000
R800,000
Traceable fixed expenses:
Advertising
Selling and administrative
Depreciation
Variable expenses as a
R 70,000
R 45,000
R 34,000
R 86,000
R 50,000
R 71,000
R102,000
R 69,000
R 24,000
60%
50%
55%
percentage of sales
Analysis shows that R68,000 of the Leather Division's selling and administrative
expenses are common to the product lines.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 5 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education