Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company’s contribution format income statement segmented by divisions for last year is given below (the currency in Brazil is the real, denoted here by R):
Top management doesn’t understand why the Glass Division has such a low segment margin when its sales are only one-third less than sales in the Plastics Division. Accordingly, management has directed that the Glass Division be further segmented into product lines. The following information is available on the product lines in the Glass Division:
Analysis shows that R60,000 of the Glass Division’s administration expenses are common to the product lines.
1. Prepare a contribution format segmented income statement for the Glass Division with segments defined as product lines.
2. Management is surprised by Specialty Glass’s poor showing and would like to have the product line segmented by market. The following information is available about the two markets in which Specialty Glass is sold:
All of Specialty Glass’s depreciation and administration expenses are common to the markets in which the product is sold. Prepare a contribution format segmented income statement for Specialty Glass 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 products over the next month. A market study indicates that such a campaign would increase sales of Flat Glass by R40,000 or sales of Auto Glass by R30,000. The campaign would cost R8,000. Show computations to determine which product line should be chosen.