Chapter 5 – Types of Business According to Activities

A business is an organization that converts inputs or resources such as material, labor and overhead into outputs, which
are usually either goods or services.

3 Major Types of Business

1. Service Companies
2. Merchandising Companies
3. Manufacturing Companies

Type of Business Definition Input Output Advantages Disadvantages Examples

According to
Activities
SERVICE Firms that generally Labor Intangible Services * Absence of or * Difficulty in Accounting and law
use employees to minimal inventory standardizing firms, hospitals,
provide services to * No production services schools, salons
customers facilities, but service * Maintaining
facilities human capital
MERCHANDISING Firms that buy Goods or Tangible * Visible products * Managing Supermarkets,
finished or almost Merchandise bought Goods/Merchandise * Less conversion, inventory convenience stores,
finished goods from from suppliers time and effort hardware and
suppliers and resell construction supply
the same to stores, book stores,
customers (buy and department stores
sell)
MANUFACTURING Firms that create Raw materials, Tangible, * Quality control * Generally needs Car companies,
their own products labor, overhead Manufactured * Visible products production facilities consumer products
Products * High conversion companies,
costs electronics
* Cost of quality companies, energy
control manufacturers
* Managing
Inventory

Operating Cycle of Service Companies

Operating Cycle of Merchandising Companies

Operating Cycle of Manufacturing Companies