Question

The following is financial information describing the six operating segments that make up Fairfield, Inc. (In thousands):

Segments
red blue green pink black white
Sales to outside parties $1,823 824 526 321 133 111
Intersegment revenues 28 103 121 0 28 314
Salary expense 626 391 414 324 329 74
Rent expense 151 178 93 104 54 43
Interest expense 77 71 94 61 26 17
Income tax expense (savings) 153 99 73 (90) (76) 0
Consider the following independently:
a. What minimum revenue amount must any one segment generate to be of significant size to require disaggregated disclosure?
c. What volume of revenues must a single customer generate to necessitate disclosing the existence of a major customer?
*Enter answer in dollars, not thousands*

Answer 1

In order to require disaggregated disclosure, a segment must generate more than $1,233.4 thousand in revenue. A major customer is defined as one generating more than $3,753.8 thousand in revenue for the company.

Step-by-step explanation:

In order to determine the minimum revenue amount that would require disaggregated disclosure, we need to consider the Financial Accounting Standards Board (FASB) guidelines. According to FASB, a segment must be reported separately if its revenue exceeds 10% of the combined revenues of all operating segments. Therefore, we would need to calculate 10% of the total revenues of all segments: ($1,823 + 824 + 526 + 321 + 133 + 111 + 28 + 103 + 121 + 0 + 28 + 314) x 0.1 = $1,233.4 thousand. So, any segment generating more than $1,233.4 thousand in revenue would require disaggregated disclosure.

To determine the volume of revenues that would necessitate disclosing the existence of a major customer, we again look to the FASB guidelines. A customer constitutes a major customer if their revenue exceeds 10% of the company's total revenue. In this case, we would need to calculate 10% of the total sales to outside parties: ($1,823 + 824 + 526 + 321 + 133 + 111) x 0.1 = $3,753.8 thousand. Therefore, any single customer generating more than $3,753.8 thousand in revenue would necessitate disclosing the existence of a major customer.

Answer 2

The accounting profit is determined by subtracting explicit costs of labor, capital, and materials from total revenues; in this case, the firm's accounting profit is $50,000.

Step-by-step explanation:

The accounting profit of Fairfield, Inc. can be calculated by subtracting all explicit costs from the total revenues. When a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit formula would be:

Accounting Profit = Total Revenues - Explicit Costs

Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000)

Accounting Profit = $1,000,000 - $950,000

Accounting Profit = $50,000

Therefore, the accounting profit would be $50,000.