Learning Goals:

In this lesson, you are expected to:

1. Compare and contrast the types of business according to activities.
2. Identify the advantages and disadvantages of types of business.

Encounter
Business entities can also be grouped by the type of business activities they
perform—service companies, merchandising companies, and manufacturing
companies. It also an organization that uses economic resources to provide goods or
services to customers in exchange for money or other goods and services.

In this module, you will learn the different types of business according to activities, their
business requirements, and their advantages and disadvantages.

Before we start the discussion, let’s test what you know about the topic by answering
the pre-assessment of this module.

Encircle the letter of your answer. Please answer all items. After taking this short test, you
will see your score. Take note of the items that you will not able to correctly answer and
look for the right answer as you go through this module.
1. Type of business is one of that offers services as its main product rather than
physical goods.
a. Service Business c. Manufacturing Business
b. Merchandising Business d. All of the Above

2. Type of business that buys and sells goods without changing their physical form.
a. Service Business c. Manufacturing Business
b. Merchandising Business d. All of the Above

3. Type of business that buys raw materials and process them into final products.
a. Service Business c. Manufacturing Business
b. Merchandising Business d. All of the Above

4. Type of business that may offer professional skills, expertise, advice, lending
service, and similar services.
a. Service Business c. Manufacturing Business
b. Merchandising Business d. All of the Above

5. Type of business that changes the physical form of the goods it has purchased in
a production process.
a. Service Business c. Manufacturing Business
b. Merchandising Business d. All of the Above
 Engage

Analyze and describe what is in the pictures and write your answers in the blank.

1. ________________________ 2. ___________________ 3.
________________________

1. _______________________ 2. ___________________ 3. ______________________

Encode

Types of business according to Activities.

Essential Question:
What are the types of business according to the 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. In this chapter, we will
discuss the different types of business according to activities, their business requirements,
and their advantages and disadvantages.
Three major types of business.
1) Service business – is one of that offers services as its main product rather than
physical goods. A service business may offer professional skills, expertise, advice,
lending service, and similar services.

Examples of service businesses include:

a. Schools
b. Professionals (accounting firm, law firm. Electrician, etc.)
c. Hospitals and clinics
d. Bank and other financial institutions
e. Hotels and restaurants

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 f. Transportation and travel (taxi operator, travel agency, etc.)
g. Entertainment and events planners (wedding planners, concert promoters,
etc.)

2) Merchandising business – or a trading business is one that buys and sells goods
without changing their physical form.

Examples of merchandising business include:

a. General merchandise resellers (grocery stores, department stores,
hardware stores, pharmacies, online stores, sari-sari stores, etc.)
b. Distributors and dealers (rice wholesalers, vegetable dealers, 2nd hand cars
dealers, etc.)

3) Manufacturing business – is one that buys raw materials and process them into
final products. Unlike a merchandising business, a manufacturing business
changes the physical form of the goods it has purchased in a production process.

Examples of manufacturing businesses include:

a. Car manufacturers (Toyota, Isuzu, Volkswagen, etc.)
b. Technology companies (Apple, Samsung, Sony, etc.)
c. Food processing companies (San Miguel, Pure Foods, Silver swan etc.)
d. Factories (clothing factories, animal feeds factories, plastic warehouse
factories etc.)

Venn Diagram
Using the Venn diagram, write the differences and similarities of service, merchandising
and manufacturing business.

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 Advantages and disadvantages of different
types of business.

Essential Question:
What are the advantages and disadvantages of different types of
business?

• Service Business- You don’t need to worry about inventory warehousing and
distribution costs. You may only need a small capita and you perceived as an
expert in your chosen field. The dis advantages you may not have a flexible
personal time. Service business normally suffer first from decline in demand during
times of economic difficulty. Your business success depends on your credibility.
Personally, you must have a good reputation. You need to be always discreet in
the things you say and the way you act in the society. Since a service business is
founded o good reputation, it is more costly to commit an error in a service
business compared to a merchandising business.

• Merchandising Business- Compared to a manufacturing firm, you may need a

much lower start-up capital because you don’t need to acquire machineries to
produce your goods. You can take advantage of price fluctuations. Lower cost
of quality. It is much easier to start a merchandising business because you don’t
need to have an expertise or a special skill and you don’t need to have invented
a new product or have conceptualized an innovative idea for existing product.
The dis advantages, you need to have a retail store to display your goods and
store must be in a strategic location for it to attract more customers. Less flexibility
in managing costs. This is because the cost of your goods is based primarily on their
purchase price, which you do not control. Keeping track of inventory is tedious,
most especially when you are selling numerous and varied items with fast turnover
rate, Self-satisfaction is low because you did not produce the products you sold.

• Manufacturing Business- You have a high growth potential because you can tap
into a wider market and can produce in large quantities. You have the opportunity
to establish a brand that could last longer than your lifetime. This is the ultimate
dream of most entrepreneurs. Self-satisfaction is high. Knowing that consumers are
happy and satisfied with tangible products you have produced brings you pride
and joy. You may not need to have a strategically located retail store to display
your products because you can sell directly to wholesalers rather than to end
consumers. You have a better pricing policy because mass production can
decrease your unit cost. Greater flexibility in managing costs. The dis advantages,
you need to high start-up capital to acquire machineries, to employ people, and
to acquire a big space for your production. Conceptualizing a viable
manufacturing business is difficult. This is why more entrepreneurs would rather
engage in merchandising. Warehousing ang logistics costs can be high. You rely
on raw materials. You need to manage them properly to ensure that they are
available when they are needed. This is because a shortage in a raw material can
disrupt your operation, and that can be very costly. Managing a manufacturing
business can be difficult because production processes are often complicated
and there is always some room for improvement

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Complete the table
Complete the table below and give the needed information.

Types of Business According Advantages Disadvantages

to Activities

Service business

Merchandising Business

Manufacturing Business

Establish
Check your understanding
1. What are the types of business according to the activities they undertake? Explain briefly
each type.
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________

2. What is the importance of business activities to the society?

______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________

3. What is the need for business activities to the economy of a country?

______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________
______________________________________________________________________________________

Enhance/Enrich
Complete the table
Think of three companies/stores who do service, merchandising and
manufacturing. Explain why those businesses were categorized as service,
merchandising or manufacturing.
Service Business Brief Explanation
1.

2.

3.

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 Merchandising Business
1.

2.

3.

Manufacturing Business
1.

2.

3.

Evaluate
A. Write True if the statement is correct and False if the statement is wrong.
__________1. A business is an activity where goods or services are exchanged for money
__________2. A corporation is created by a contract.
__________3. The cooperative is registered with the Cooperative Development Authority (CDA).
__________4. The corporation registered with the Securities and Exchange Commission
__________5. The sole proprietorship registered with the Securities and Exchange Commission
__________6. Person who are engaged in business are called businessmen.
__________7. The most common form of business organization is corporation because its greater
capital and ease in raising additional funds.
__________8. The owner of sole proprietorship business is called shareholder
__________9. A business is an economic entity that is recognized primarily to make money
__________10. Cooperative formed by contractual agreement.

B. Identify the following. Write SB if its service business, MEB if it is merchandising business and
MAB if it is manufacturing business, and AD if its Advantages and DIS if its Disadvantages. Write
your answer the space provided below.
__________, __________1. Less conversion, time and effort
__________, __________2. Absence of inventory
__________, __________3. High conversion costs
__________, __________4. Quality control
__________, __________5. Managing inventory
__________, __________6. No production facilities
__________, __________7. Inability to standardize services
__________, __________8. Visible products
__________, __________ 9. Maintaining human capital

Agreement
Give the accounting concepts and principles. Explain briefly.

References:
Fundamentals of Accountancy, Business and Management Part 1
Second Edition (Copyright 2018)
Rodiel C. Ferrer
Zeus Vernon B, Millan
Pages 45 to 53

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