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 Total Company R 4,335,000 2,002,750 2,332,250 Sales Traceable fixed expenses: 790,000 581,000 257,000 1,628,000 704,250 404,000 R 300,250 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales Divisions Cloth Leather R 2,550,000 R 1,785,000 1,100,000 1,450,000 440,000 350,000 129,000 919,000 R 531,000 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: 902,750 882,250 Garments R500,000 350,000 231,000 128,000 709,000 173,250 Leather Division Product Lines Handbags R425,000 R 94,000 R 44,000 R 33,000 65% Shoes R860,000 R126,000 R 49,000 R 70,000 40% R130,000 R 51,000 R 25,000 55% Analysis shows that R87,000 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.
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 Total Company R 4,335,000 2,002,750 2,332,250 Sales Traceable fixed expenses: 790,000 581,000 257,000 1,628,000 704,250 404,000 R 300,250 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales Divisions Cloth Leather R 2,550,000 R 1,785,000 1,100,000 1,450,000 440,000 350,000 129,000 919,000 R 531,000 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: 902,750 882,250 Garments R500,000 350,000 231,000 128,000 709,000 173,250 Leather Division Product Lines Handbags R425,000 R 94,000 R 44,000 R 33,000 65% Shoes R860,000 R126,000 R 49,000 R 70,000 40% R130,000 R 51,000 R 25,000 55% Analysis shows that R87,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
Total Company
R 4,335,000
2,002,750
2,332,250
Sales
Traceable fixed expenses:
R
790,000
581,000
257,000
1,628,000
Advertising
Selling and administrative
Depreciation
Variable expenses as a percentage of sales
704,250
404,000
300,250
Divisions
Cloth
R 2,550,000
1,100,000
1,450,000
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:
440,000
350,000
350,000
231,000
129,000
128,000
919,000
709,000
R 531,000 R 173,250
Leather
R 1,785,000
902,750
882, 250
Leather Division Product Lines
Handbags
R425,000
Garments
R500,000
R 94,000
R 44,000
R 33,000
65%
Shoes
R860,000
R126,000
R 49,000
R 70,000
40%
R130,000
R 51,000
R 25,000
55%
Analysis shows that R87,000 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.
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