Explain What an Operating Segment Is

question 41

Essay

Explain what an operating segment is. For each of the examples below, determine what operating segments the company has and why.
a. A beverage company sells beer, wine, and bottled water. The beer and wine are sold through liquor store outlets and directly to restaurants. The bottled water is sold to retailers.
b. A company sells leather apparel. The company designs, manufactures, and retails these goods through its own retail outlets. There are primarily three divisions: (1)designing and sourcing and purchasing various raw materials; (2)manufacturing; and (3)distribution and retail. The design and raw materials flow through to the manufacturing division. All output of the manufacturing division is transferred to the distribution and retail division. Only the distribution and retail division has external revenues. The other divisions have internal revenues only.
c. A drug company researches, manufactures, and distributes its drugs to pharmacies and hospitals in Canada, the United States, and Australia. It currently manufactures three drugs. Two of these drugs treat diabetes, and one drug is used to treat arthritic pain. The company has a fourth drug that is in phase three of the research process, awaiting final approval. This drug will also be used to treat pain, but mainly headache pain.