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 4,186,000 1,874,760 2,311,240 Sales Traceable fixed expenses: R 760,000 570,000 241,000 1,571,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 740,240 396,000 344,240 Divisions Cloth 2,300,000 1,020,000 1,280,000 R 360,000 270,000 121,000 751,000 R 529,000 R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 18% 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 R 1,886,000 854,760 1,031,240 Garments R560,000 Leather Division Product Lines Handbags R 86,000 R 36,000 R 25,000 400,000 300,000 120,000 820,000 211,240 60% Shoes R750,000 R118,000 R 41,000 R 62,000 30% R576,000 R196,000 R 42,000 R 33,000 51%
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 4,186,000 1,874,760 2,311,240 Sales Traceable fixed expenses: R 760,000 570,000 241,000 1,571,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 740,240 396,000 344,240 Divisions Cloth 2,300,000 1,020,000 1,280,000 R 360,000 270,000 121,000 751,000 R 529,000 R Top management can't understand why the Leather Division has such a low segment margin when its sales are only 18% 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 R 1,886,000 854,760 1,031,240 Garments R560,000 Leather Division Product Lines Handbags R 86,000 R 36,000 R 25,000 400,000 300,000 120,000 820,000 211,240 60% Shoes R750,000 R118,000 R 41,000 R 62,000 30% R576,000 R196,000 R 42,000 R 33,000 51%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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Manji
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 4,186,000
1,874,760
2,311,240
Sales
Traceable fixed expenses:
760,000
570,000
241,000
1,571,000
740,240
396,000
R 344, 240
Advertising
Selling and administrative
Depreciation
Variable expenses as a percentage of sales
R
Top management can't understand why the Leather Division has such a low segment margin when its sales are only 18% 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
Divisions
Cloth
R 2,300,000
1,020,000
1,280,000
0
R
360,000
270,000
121,000
751,000
R 529,000 R
Garments
R560,000
R 86,000
R 36,000
R 25,000
60%
Leather
R 1,886,000
854,760
1,031,240
HRAC
Leather Division Product Lines.
Handbags
Garments
0
400,000
300,000
120,000
820,000
211,240
Analysis shows that R181,000 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.
R
Shoes
R750,000
R118,000
R 41,000
R 62,000
30%
Product Line
Shoes
0
R576,000
R
R196,000
R 42,000
R 33,000
51%
Handbags
0
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