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Horngren'S Financial And Managerial Accounting
Found in: Page 884

Short Answer

How do manufacturing companies differ from merchandising companies?

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

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Step by Step Solution

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.

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).

Most popular questions for Business-studies Textbooks

Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer’s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.

Becky’s former employer, Shamalay Automotive, receives only about 25 cars each month. Consequently, Shamalay is not very profitable.

Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer’s regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma. Put yourself in Becky’s place.

Requirements

1. What is the ethical issue?

2. What are your options?

3. What are the possible consequences?

4. What should you do?

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