Severo S.A. of Sao Paulo, Brazil, is organized into two divisions. The company's contribution format segmented...
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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 Total Company R 4,845,000 2,217,500 2,627,500 Sales Traceable fixed expenses: R 811,000 647,000 269,000 1,727,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 900,500 410,000 490,500 Divisions Cloth R 2,850,000 1,160,000 1,690,000 500,000 410,000 135,000 1,045,000 R 645 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 R 1,995,000 1,057,500 937,500 Garments R750,000 R R 71,000 R 50,000 R 39,000 70% 311,000 237,000 134,000 682,000 255,500 Leather Division Product Lines Handbags R345,000 Shoes R900,000 R 76,000 R 55,000 R 76,000 40% R164,000 R 65,000 R 19,000 50% Analysis shows that R67,000 of the Leather Division's selling and administrative expenses are common to the product lines. 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. Traceable fixed expenses: Total traceable fixed expenses Common fixed expenses: R R Leather Division Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R R Garments Domestic R300,000 R R 69,000 R Handbag Markets Foreign R45,000 R95,000 70% 47% Product Line 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: Shoes R R Handbags 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. Traceable fixed expenses: Common fixed expenses: Total common fixed expenses Increased operating income R R R Handbags Garments |R R Shoes R 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 R220,000 or sales of the shoes product line by R165,000. The campaign would cost R35,000. a. Compute the increased operating income for these product lines for the expected increased sales. Sales Market Domestic R R Foreign b. Based on the above results, which product line should be chosen? Garments Shoes 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 4,845,000 2,217,500 2,627,500 Sales Traceable fixed expenses: R 811,000 647,000 269,000 1,727,000 Advertising Selling and administrative Depreciation Variable expenses as a percentage of sales 900,500 410,000 490,500 Divisions Cloth R 2,850,000 1,160,000 1,690,000 500,000 410,000 135,000 1,045,000 R 645 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 R 1,995,000 1,057,500 937,500 Garments R750,000 R R 71,000 R 50,000 R 39,000 70% 311,000 237,000 134,000 682,000 255,500 Leather Division Product Lines Handbags R345,000 Shoes R900,000 R 76,000 R 55,000 R 76,000 40% R164,000 R 65,000 R 19,000 50% Analysis shows that R67,000 of the Leather Division's selling and administrative expenses are common to the product lines. 1. Prepare a contribution format segmented income statement for the Leather Division, with segments defined as product lines. Traceable fixed expenses: Total traceable fixed expenses Common fixed expenses: R R Leather Division Sales Traceable fixed expenses: Advertising Variable expenses as a percentage of sales R R Garments Domestic R300,000 R R 69,000 R Handbag Markets Foreign R45,000 R95,000 70% 47% Product Line 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: Shoes R R Handbags 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. Traceable fixed expenses: Common fixed expenses: Total common fixed expenses Increased operating income R R R Handbags Garments |R R Shoes R 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 R220,000 or sales of the shoes product line by R165,000. The campaign would cost R35,000. a. Compute the increased operating income for these product lines for the expected increased sales. Sales Market Domestic R R Foreign b. Based on the above results, which product line should be chosen? Garments Shoes
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ANSWER 1 Contribution Format Segmented Income Statement for the Leather Division Leather Division Pr... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-1259024900
9th canadian edition
Authors: Ray Garrison, Theresa Libby, Alan Webb
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