Sell-It Products Inc.’s business is the manufacturing, marketing, and distribution of consumer products. The SEC sent the company an e-mail with several concerns about their reportable segments disclosed in their Annual Report. Following are relevant facts:
1. SPI sells all its products to grocery stores, drug stores, and mass merchandisers in the United States, Canada, Mexico, Asia, and Europe. 2. SPI is organized into three divisions that include the following products: a. Beauty care — cosmetics and shampoo.
b. Family care — paper towels and diapers.
c. Drinks and snacks — Blasto Energy Drink, Jazzy Juice, and Fruit & Granola Snacks 3. Managers responsible for each product line (product managers) report to the respective divisional executive vice presidents (EVPs), who are responsible for the day-to-day operations of the division, and EVPs report to the chief executive officer (CEO) who makes decisions based on the following information: a. Strategic direction and resource allocations of SPI
b. Consultation with the other corporate officers
c. Review of the monthly operating package (MOP)
4. The CEO is the highest level of management that makes decisions about SPI’s overall resource allocation to different areas of the business based on gross margin by product. 5. The CEO and the controller continue to believe that three reportable segments are appropriate on the basis of the following: a. The CEO focuses on the consolidated results of SPI and the summary by division. b. SPI’s three largest competitors disclose only one segment. c. SPI is reluctant to provide additional information because it may place the Company at a competitive disadvantage.
Identification of Issues and Alternatives
The questions and alternatives that follow are regarding:
1. Identify the operating segments for SPI. Should SPI classify segments by division or product line? 2. Determine the...