Question

From an accounting perspective, compare and contrast manufacturing firms, merchandising firms, and service-sector firms.

Answer 1

These are the basic differences in which most of the businesses can be classified :-

Manufactureing firms - Manufacturing business are the business that produces the product by using parts, components or raw material. Now these finished goods can be sold to direct consumer to consume it or it can be sold to other manufacturer for further manufacturing. The cost occured under manufacturing business are direct labour, plant and equipment, manufacturing overhead and raw material.

Under it, cost of goods manufactured is calculated with the help of this formula = Work-in-process inventory (beginning balance) + Total manufacturing cost (direct material, direct labour, manufacturing overhead) - Work-in-process inventory (ending balance).

Merchandising firms - It works like mediator in between consumer and producer. Merchandising business purchases finished products and resells them to consumer at a profit. Thats'why they are called reseller or retailer. The cost occured under merchandising business are lease on retail space, merchandise inventory and retail sales staff.

Under it, cost of goods sold is calculated by using this formula = Beginning merchandise inventory + Purchases - Ending merchandise inventory.

Service-sector firms - Services are the intangible product of the business from which business earns revenue. Such as insurance service, banking service, airlines, hospitals are the intangible products or services given by the companies to consumer and consumer pay for it. It includes billing and collection cost, computer network equipment, professional staff etc.

Under it, operating income is calculated using this formula = Service revenue - total operating expenses (salaries, office equipment, administrative expenses, miscellaneous).

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