2121122, 643 AM 3 Types of Companies in Managerial Accounting 3 Types of Companies in Managerial Accounting Its important to identify the type of company you are working within managerial accounting, Depending on the type of company, you will identify different costs and set up reports differently, Thete are three major types of companies we will deal ‘with inthis course: 1. Service companies 2. Merchandising companies 3. Manufacturing companies Service companies Service firms make up the largest business sector in the United States. Service companies are those that do not sell a physical product but instead provide services to their customers. Service firms include accounting firms, law firms, marketing firms, IT services firms, banks, dry cleaners, health care organizations, educational institutions and many other businesses we interact with on a daily basis One major difference between service companies and the other two types is that service companies do not have the cost of goods sold because there is no product being sold. Service firms also do not have inventory, also because no physical product is being sold. There may be direct costs associated with providing the service, but no physical product. Merchandising companies “Merchandising companies are those which sell products but do not make products. Merchandising companies are broken up into two different types: retailers and wholesalers Retailers sell products directly to the end user. Staples, Wal-Mart, Target, American Eagl retailers, They sell products that consumers and businesses use, rather than resell GAP, and Home Depot are all Wholesalers buy products from manufacturers and sell them to other merchandising companies, usually retailers. For example, ‘most small breweries will use a distributor to help get their beers into stores and restaurants. These distributors have established relationships with local stores and restaurants, making easier for small breweries to get their beers to the publie, A distributor is ‘a wholesaler. Wholesalers are sometimes referred to as “middlemen” because they aet as an intermediary between a manufacturer and a retailer, Merchandising companies purchase inventory (an asset) and sell that inventory. When inventory is sold, the asset is considered used up, and the cost of that inventory is transferred from the balance sheet to the ineome statement as an expense. This expense is called eost of goods sold. For merchandising companies, the inventory account can also be referred to as merchandise inventory. Manufacturing companies Manufacturing companies are companies that make a product. Monster Beverages, Dell Computers, Boeing, and General Motors are all companies that produce a product. These companies use labor and machinery to turn materials into a produet. Some manufacturing companies sell their products directly to the end user, like Boeing. Some companies like Dell, sell their product directly to consumers and to retailers. Monster Beverages and General Motors sell their products to retailers who sell the product to the end user. All manufacturing companies have three different inventory accounts to aceount for the steps in the production process. |. Raw materials inventory 2. Work-in-progress 3. Finished goods inventory Raw materials inventory ‘Raw materials are the components that companies use to produce their products. Don’t Jet the word “raw” lead you to think that this account is full of wood, plastic, metal or bolts of fabric. Many companies purchase components already manufactured and use them in their finished products. For example, Dell purchases processors from Intel to putin their computers, These processors are considered raw materials until these processors actually go into a computer. Raw materials are any materials ‘that have not yet been used in the production process. Work: \-progress ‘ead: itps_accountingnfocus.comyurlshitos%3A%2F%2Faccountingnfocus.comté2F manageriakaccounting-2%2Fintroduction-manageriakacc... 1/42121122, 643 AM ‘3 Typos of Companies in Managerial Accounting ‘Companies are continuously making products, which means that atthe end of each day or week or month there are products that are not finished. These products have entered the manufacturing process but are not completed. Work-in-progress is inventory that has gone into the production process but has not yet been finished. Think of an aircraft at Boeing that does not ‘have the seats or engines installed, but the rest of the plane is built. We cannot call these raw materials, but we also cannot say that itis finished. This plane would be considered part of work-in-process, Finished goods inventory When a product is finished itis transferred to finished goods inventory. Typically when we think of inventory, we think of finished goods inventory, the stuff that is ready to be sold to our customers. Once a product is classified as finished goods inventory, no additional costs can be added tothe product. This is a very important concept when we stat talking about types of costs Hybrid companies Many companies do not fit neatly into one of these categories. For example, restaurants make a produet (meals, sell products it does not make (wine and beer), and provides a service (serving the meal). These companies are considered hybrid companies. When classifying companies, make sure to consider that a company could fit into more than one of the categories above. Final Thoughts Considering the type of company you are working with can help you better identify the types of costs the company will incur, how those costs should be allocated and the types of reports that would be useful in the planning, decision making and controlling aspects of managerial accounting. Ifyou need help with Financial Accounting Topic or check out our list if you Need help with your accounting class click Uhrough the links to see our other offerings. What if you need help with your study habits Paulas Tae Maybe you have been out of college for years, or you do just what it takes to get by. STOP according to a recent study the average student with a GPA of 3.8 o higher makes 78% mote money after 3 years of work, Ifyou want to work in your field, you can learn to lear better, that is why this to help students have the sign up for my fee training and have the best semester ever so when you eam your degree you can eam more money. Shareable post images ‘ead itps_accountinginfocus.comyurlshitps%3A%2F%2Faccounting focus. com®%é2F manageriakaccounting-2%2Finiroduction-manageral-ac, 282121122, 643 AM {Typos of Companies in Managerial Accounting aod leet uc ‘ead: itps_accountinginfocus.comyurlshitos%3A%2F%2Faccountingnfocus.comé2F manageriakaccounting-2%2Fintroduction-manageriakacc... 3/4Types of Companies in Managerial Accounting accountinginfocus. conv ?urf=httns%43A%2F%42Faccountingnfocus.com¥s2Fmanageriakaccounting-2942Fintroducton-managerial-ace.... 414