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Chapter 16: 8RQ (page 884)

How do manufacturing companies differ from merchandising companies?

Short Answer

Expert verified

The manufacturing company sells the product made by themselves and merchandising company sells the product purchased from suppliers.

Step by step solution

01

Definition of manufacturing companies

A manufacturing company is defined as a business organization that uses labor, equipment, and facilities to convert raw materials into finished goods.

02

Difference between manufacturing and merchandising company

Merchandising company sells the goods which are purchased earlier from the supplier but on the other hand, a manufacturing company sells the goods which are manufactured by themselves.

The merchandising company keeps the inventory of the product but the manufacturing company has to keep three types of inventories: raw material inventory (RM), work-in-process inventory (WIP), and finished goods inventory (FG).

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Most popular questions from this chapter

Identifying ethical standards

The Institute of Management Accountants鈥� Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?

a) You tell your brother that your company will report earnings significantly above financial analysts鈥� estimates.

Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:

f. Cost of TV ads.

Classifying period costs and product costs

Langley, Inc. is the manufacturer of lawn care equipment. The company incurs the following costs while manufacturing edgers:

鈥� Handle and shaft of edger

鈥� Motor of edger

鈥� Factory labor for workers assembling edgers

鈥� Lubricant used on bearings in the edger (not traced to the product)

鈥� Glue to hold the housing together

鈥� Plant janitorial wages

鈥� Depreciation on factory equipment

鈥� Rent on plant

鈥� Sales commissions

鈥� Administrative salaries

鈥� Plant utilities

鈥� Shipping costs to deliver finished edgers to customers

Requirements

1. Describe the difference between period costs and product costs.

2. Classify Langley鈥檚 costs as period costs or product costs. If the costs are product costs, further classify them as direct materials, direct labor, or manufacturing overhead.

What are prime costs? Conversion costs?

List the three inventory accounts used by manufacturing companies, and describe each.
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