
One of the most
Identifiable Toy
Ever!!! was
the creation of the
Handler- a founder of
Mattel named after
her daughter B...

In 1945, Elliot and Ruth Handler, along with a friend, Harold Matson,
founded a small toy company. Within a few months, ...





The SEC determined that Mattel’s management intentionally
understated the company’s reserve for inventory obsolescence b...

In arriving at its year-end reserve for obsolete inventory, Mattel
prepared weekly sales forecasts for the next several ...

Mattel’s auditors also discovered during the 1972 audit that more
than $1.2 million of tooling costs had been deferred t...

Under the leadership of new management, Mattel slowly recovered from its
nearly disastrous experiences of the early 1970...
Pom casestudy
of 11

Pom casestudy

Matel Case Study
Published on: Mar 4, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Pom casestudy

  • 1.  One of the most Identifiable Toy Ever!!! was the creation of the Handler- a founder of Mattel named after her daughter Barbara.
  • 2.  In 1945, Elliot and Ruth Handler, along with a friend, Harold Matson, founded a small toy company. Within a few months, Matson decided to pursue other interests and left Mattel, Inc., to the Handlers. For the next decade, the husband-and wife team struggled to make their small company a success. Elliot Handler, an artist, designed the toys the company produced, while Ruth Handler managed the company’s business affairs, concentrating much of her time on finding sales outlets for their products. Her plan was to advertise Mattel’s toys on the popular children’s television program, The Mickey Mouse Club. The cost of the advertising campaign was several hundred thousand dollars and if unsuccessful could have bankrupted the small company; however, Ruth Handler’s gamble paid off handsomely. Within a few months, Mattel’s sales orders increased dramatically, Barbie was an instant success, with more than 350,000 sold the first year it was on the market.
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  • 7.  The SEC determined that Mattel’s management intentionally understated the company’s reserve for inventory obsolescence by several million dollars over the two-year period 1971—1972. Inventory obsolescence is historically a major problem for the large toy manufacturers, given the inherent difficulty of predicting children’s taste in toys. For example, in fiscal 1971, Mattel executives faced a huge and unexpected inventory buildup of the Hot Wheels toy, which had traditionally been one of the company’s best-selling products. The following year, Mattel was forced to dispose of approximately 5.6 million of the Hot Wheels toys by selling them to a large oil company at a loss of more than $11 million.
  • 8.  In arriving at its year-end reserve for obsolete inventory, Mattel prepared weekly sales forecasts for the next several months for each toy that was considered an “excess inventory” item. A reserve for obsolescence was then recorded for those toys whose expected sales in the following months were less than the yearend inventory In 1971 and 1972, the SEC found that Mattel inflated the projected sales. However, Mattel adjusted the account balance by only $1.4 million. According to the SEC. Arthur Andersen’s workpapers did not reveal how that figure was determined, nor did the workpapers provide any evidence suggs~sting that the $1.4 million adjustment was sufficient to correct the noted problem.
  • 9.  Mattel’s auditors also discovered during the 1972 audit that more than $1.2 million of tooling costs had been deferred twice. This discovery was made by a senior member of the Arthur Andersen engagement team, who then wrote a review comment instructing a subordinate to make sure that the proper adjusting entry was recorded. In responding to the review comment, the subordinate subsequently noted, “Tooling write-off adjusted for this fact.” Despite this assertion, the SEC determined that the adjustment was never made.
  • 10.  Under the leadership of new management, Mattel slowly recovered from its nearly disastrous experiences of the early 1970s. In 1994, Mattel overtook Hasbro as the nation’s largest toy maker. Two years later, Mattel’s annual revenues surpassed $4.5 billion, nearly 40 percent of which was attributable to the Barbie product line. That product line included more than 100 different Barbie dolls by late 1997. Among these dolls were Hula Hair Barbie, Workin’ Out Barbie, Country Rose Barbie, and Harley-Davidson Barbie. Ruth Handler also staged a dramatic comeback following her traumatic experiences of the early 1970s. After her forced retirement from Mattel, she founded a company, Ruthton Corporation, that manufactures prosthetic devices for women who, like herself, have undergone mastectomies. Although a small company with a relatively small market, Ruthton Corporation quickly established itself and within a few years was reporting annual sales of several million dollars. In 1989, Ruth and Elliott Handler were recognized for their contributIons to the toy industry by being inducted into the industry’s hall of fame.

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