To:Dr. John J. Morris, Department of Accounting
From:Group #9 (Sydney Case, Hannah Peterson, Kassidy Frederick) Date:April 3, 2012
Subject:Acctg 642: Case 08-5 Sell-it Products Inc.
Statement of Facts
Sell-it Products Inc. manufactures, markets, and distributes consumer products. It has been brought to their attention that the SEC is questioning their reportable segments it disclosed in their Annual Report. Below are the relevant facts: • Sell-it Products sells their products through grocery stores, drug stores, and mass merchandisers. • The continents these products are sold in include the North America, Asia, and Europe. • SPI is organized in three divisions with the following products: 1. Beauty Care – cosmetics and shampoo.
2. Family Care – paper towels and diapers.
3. Drinks and Snacks – Blasto Energy Drink, Jazzy Juice and fruit and granola snacks • The CEO hears reports from the product managers and executive vice presidents and makes decisions based on their reports and the Monthly Operating Package (MOP). • The CEO is the Chief Operating Decision Maker.
• The CEO makes resource allocation decisions and assesses performance based on the gross margin of each division.
Identification of Questions & Alternatives
The questions and alternatives that follow are regarding the disclosure of segments and aggregation criteria. 1. Identify the operating segments for SPI. Does it matter what information the CODM uses when making allocation decisions and assessing performance? 2. Which of SPI’s operating segments can be aggregated? Which segments need to be reported separately? Do any of the segments fall into the “all other” aggregate category?
Conclusions and Authoritative Reasoning
1. Sell-it Products should report seven operating segments in their Annual Report. a) ASC 280-10-50-1 states, “An operating segment is a component of a public entity that has all of...