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PROBLEM 11-19 Finely Segmented Income Statements 101 excel 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 Division Total Company Cloth Leather R3,500,000 1.721.000 1.779,000 R2,000,000 960,000 R1,500,000 761.000 739,000 1,040.000 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 612,000 427,000 229.000 1.268,000 511,000 390,000 R 121.000 300,000 210,000 115.000 625.000 R 415.000 312,000 217.000 114.000 643,000 96,000 R 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 Leather Division Product Line Garments Shoes Handbags R500,000 R 700,000 R300,000 R 112.000 Sales Traceable fixed expenses Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales R 80.000 R 30.000 R120,000 R 42.000 R 33.000 52% R35,000 R$6,000 40% R 25.000 65% Page 507 Analysis shows that R110,000 of the Leather Division's selling and administrative expenses are common to the product lines. Reywin: 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. 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: B D F G H Product Line Shoes Total Leather Division Garments Handbags 1 Probler 11-19 2 Part 1 3 4 Sales 5 Variable expenses 0 7 Traceable foxed expenses 8 Advertising 9 Selling and Admin 10 Depreciation 11 Total traceable faced expenses 12 Pidouct line segment margin 13 Common fixed expense 14 Selling and admin 15 Divisional segment margin 16

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