Analysis of Duggan Industries, Inc. Business Units for Segmented Financial Reports
Should Duggan Industries, Inc. (DII) report its business units as operating segments or aggregate them with other units? Explain each scenario.
Answer:
(a) Duggan Industries, Inc. (DII) should report its South American consulting services as a single operating segment. The services are geographically and economically integrated, with similar regulatory requirements across countries and minimal asset requirements. This makes it suitable for reporting as an individual segment.
(b) DII's northern division, despite having high expenses and contributing significantly to DII's total revenue, should also be reported as an operating segment. Despite the low net profit percentage, the division's importance in revenue generation warrants separate reporting.
(c) The European division, utilizing 12% of DII's total assets, should be reported as an operating segment. Its significant asset usage justifies its separate representation in segmented financial reports.
(d) Eastern and Western Canadian Delivery Services, due to their similar delivery methods, shared regulatory requirements, and overlapping customer base, should be aggregated as a single operating segment. Despite earning different percentages of DII's total profit, their operational similarities make them suitable for combined reporting.
Explanation of Business Units Reporting:
South American Consulting Services: The nature of these services, coupled with the harmonized regulatory environment and minimal asset requirements, make them ideal for reporting as a single operating segment. This approach allows for a more accurate representation of the business performance in the South American market.
Northern Division: Despite its high expenses and low net profit percentage, the northern division's substantial contribution to DII's total revenue justifies its separate reporting. Understanding the division's financial performance is key to evaluating DII's overall revenue streams.
European Division: With the European division utilizing a significant portion of DII's total assets, reporting it as an operating segment provides insights into the division's asset efficiency and overall contribution to the company's operations.
Eastern and Western Canadian Delivery Services: By aggregating these services as a single operating segment, DII can streamline its reporting process while still capturing the essential similarities in operations, regulatory compliance, and customer base. This approach ensures a comprehensive view of the delivery services' combined performance within DII.