COMPARISON OF MERCHANDISING AND MANUFACTURING ENTITIES


COMPARISON OF MERCHANDISING AND MANUFACTURING ENTITIES

Merchandising firms are engaged in the buying and selling of goods.  Usually, the goods bought are sold in the same form without any change except perhaps in packaging.  Manufacturing firms have to produce the goods which they sell.  This involves the purchase of various material input, as well as the application of labour and other expenses to convert the raw materials into finished, saleable products.

Merchandising firms have only one type of inventory, that is, the stock of goods for sale.  Manufacturing firms will usually have inventories of raw materials, work-in-progress, finished goods, and consumable stores and supplies.

Raw materials inventory is the stock of direct materials which have not been issued to production.  These are usually held in the materials store.  The cost of raw materials inventory will depend on the valuation methods being used, i.e. either FIFO, LIFO or AVCO. 

Work in progress consists of partly completed goods which are still in the factory.

Finished goods inventory is the stock of completed goods which have not been sold.

The calculation of the cost of goods sold in merchandising firms is straightforward as this is based on the purchase cost of the goods.  In manufacturing firms, the various costs of inputs for production have to be compiled before the cost of goods manufactured and sold could be calculated.

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