Lesson 007 - Types of Businesses According to Activities (Service, Merchandising, Manufacturing)

Summary

This video lesson explains the three types of businesses based on their activities: service, merchandising, and manufacturing. It provides clear examples of each type, such as barber shops for service businesses, grocery stores for merchandising, and car manufacturers for manufacturing. The video also discusses how these businesses generate income, with practical problems illustrating income calculation. Additionally, it explores the integration of these business types, showing how they can work together in real-world scenarios, like a music production company or essential oils manufacturer.

Takeaways

• 😀 The lesson distinguishes between three types of businesses based on their activities: service, merchandising, and manufacturing companies.
• 💼 Service businesses generate income by providing services for a fee, such as barber shops, spas, travel agencies, IT solutions firms, and accounting services.
• 🛍️ Merchandising businesses involve the buying and selling of goods, with grocery stores and fashion boutiques being prime examples.
• 🏭 Manufacturing companies purchase raw materials and transform them into finished goods, like ice cream or cars, through a production process.
• 🔄 It's possible for businesses to combine these activities; for example, a music production company may offer concerts (service), sell CDs (merchandising), and produce albums (manufacturing).
• 🌟 The integration of these business types can create a system where a manufacturer supplies a product to a service business, which then uses it to provide a service to customers.
• 📊 Service businesses measure income using the income statement formula: revenue minus expenses equals net income.
• 📉 Merchandising and manufacturing businesses calculate net income by matching sales revenue with the cost of goods sold and then subtracting operating expenses.
• 🔢 In the given examples, a barbershop's net income is calculated by subtracting salaries, utilities, and rent from service revenue.
• 🛒 A grocery store's net income is found by deducting the cost of goods sold, salaries, utilities, and rent from sales revenue.
• 🏗️ A car manufacturing company's net income involves subtracting materials, labor, overhead, salaries, utilities, and rent from sales revenue.
• 📝 The lesson emphasizes the importance of understanding the different types of business activities and how they measure income.

Q & A

What are the three types of businesses according to activities mentioned in the script?

The three types of businesses according to activities are service companies, merchandising companies, and manufacturing companies.

How does a service business generate income?

A service business generates income by providing services for a fee. Customers pay for the services rendered after they have been provided.

Can you give an example of a service business mentioned in the script?

Examples of service businesses include a barber shop, a salon, massage therapies or spas, a travel tourist agency, IT solutions firms, legal services, and accounting services.

What is the main difference between a merchandising business and a service business?

The main difference is that a merchandising business involves buying and selling goods, whereas a service business provides services for a fee without necessarily dealing with goods.

How does a merchandising business operate?

A merchandising business operates by purchasing goods from suppliers and then selling these goods to customers, making a profit from the difference between the purchase and selling prices.

What is a manufacturing business and how does it differ from a merchandising business?

A manufacturing business purchases raw materials and processes them into finished goods to be sold to customers. Unlike merchandising, manufacturing involves a transformation process of the goods before selling them.

Can a single company engage in all three types of business activities?

Yes, a single company can engage in all three types of business activities. The script provides an example of a music production and recording company that organizes concerts (service), operates a record bar (merchandising), and produces CD albums (manufacturing).

How is net income calculated for a service business?

Net income for a service business is calculated by subtracting operating expenses from service revenue, which is the income generated from providing services.

What is the formula for calculating net income in merchandising and manufacturing businesses?

The formula for calculating net income in merchandising and manufacturing businesses is to subtract the cost of goods sold and operating expenses from sales revenue.

What is considered as an example of a service business in the script?

Accounting firms are considered as an example of a service business in the script, as they provide various accounting services to clients.

How does the script illustrate the integration of the three types of business activities?

The script illustrates integration by describing a scenario where an essential oils manufacturer sells to groceries (merchandising), which then sells to customers, and a massage spa purchases these oils for their services (service business), showing how the activities can work together in a system.

Outlines

00:00

📚 Introduction to Business Types by Activity

This paragraph introduces the concept of classifying businesses based on their activities and the way they earn income. It outlines three main types: service companies, merchandising companies, and manufacturing companies. Service businesses generate income by providing services for a fee, such as a barber shop, spa, or travel agency. Examples are given to illustrate how these businesses operate, including professional services like IT solutions, legal services, and accounting.

05:04

🛍️ Understanding Merchandising Businesses

The second paragraph delves into the specifics of merchandising businesses, which involve the buying and selling of goods. It explains the process of purchasing goods from suppliers and then selling them to customers for a profit. Examples include grocery stores, fashion boutiques, and department stores within a mall. The paragraph emphasizes the difference between merchandising and manufacturing, where the latter involves a production process to create the goods being sold.

10:06

🏭 Exploring Manufacturing Businesses

This paragraph focuses on manufacturing businesses, which purchase raw materials and transform them into finished goods through a production process. It contrasts this with merchandising by highlighting the creation of goods, rather than just the resale of purchased items. Examples such as an ice-cream manufacturing company and a car manufacturing company are used to illustrate the process from raw materials to finished products ready for sale to customers.

15:07

🎼 Case Studies of Integrated Business Activities

The fourth paragraph presents case studies to demonstrate how the three types of businesses can coexist and interact within a single entity or system. It discusses a music production and recording company that operates in service by organizing concerts, in merchandising by selling CDs, and in manufacturing by producing CD albums. Another example involves a manufacturer of essential oils, a grocery store as a retailer, and a massage spa as a service provider, showing how these businesses can work together in a supply chain.

📊 Analyzing Business Income Measurement

The final paragraph discusses how different types of businesses measure their income. For service companies, the income statement is calculated by subtracting operating expenses from service revenue to arrive at net income. For merchandising and manufacturing businesses, the process involves matching sales revenue with the cost of goods sold, which includes the expenses for materials, labor, and overhead. The paragraph provides examples of income calculation for a barbershop, a grocery store, and a car manufacturing company, demonstrating the application of these principles in practice.

Keywords

💡Business Organizations

Business organizations refer to the various structures and types of businesses that exist, each with distinct legal, operational, and financial characteristics. In the video, the theme revolves around understanding these different forms, which are categorized based on the activities they perform and how they generate income.

💡Service Business

A service business is a type of organization that generates income by providing intangible services to customers for a fee. The video defines it as providing services such as haircuts, massages, or travel arrangements and receiving payment for those services rendered. Examples from the script include a barber shop, spas, and travel agencies.

💡Merchandising

Merchandising is a business model that involves the buying and selling of goods. The video explains that in merchandising, a company purchases goods from suppliers and then sells them to customers, making a profit from the difference in price. The script cites grocery stores and fashion boutiques as examples of merchandising businesses.

💡Manufacturing

Manufacturing refers to the process of converting raw materials into finished goods through a series of production processes. The video describes manufacturing companies as those that purchase raw materials and transform them into products, which are then sold to customers. Examples given include an ice-cream manufacturing company and a car manufacturing company.

💡Service Industry

The service industry is a sector of the economy that focuses on providing services rather than physical goods. It is closely related to the concept of a service business. The video emphasizes that service industries generate income by offering services such as IT solutions, legal services, and accounting services.

💡Cost of Goods Sold

Cost of goods sold (COGS) is a term used to describe the direct costs attributable to the production of the goods sold by a company. In the video, COGS is explained as the amount paid for the goods that a company will sell, which is a critical factor in determining the gross profit in both merchandising and manufacturing businesses.

💡Gross Profit

Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs of providing its services. The video illustrates this by showing the difference between sales revenue and cost of goods sold, using examples from a barbershop, a grocery store, and a car manufacturing company.

💡Net Income

Net income, also known as the bottom line, is the profit left after all expenses have been deducted from a company's total revenue. The video explains how to calculate net income by subtracting operating expenses from service revenue or from the gross profit in the case of merchandising and manufacturing businesses.

💡Operating Expenses

Operating expenses are the costs that a company incurs in its normal day-to-day operations, excluding the cost of goods sold. The video mentions salaries, utilities, and rent as examples of operating expenses that are subtracted from revenue to calculate net income.

💡Integration of Business Types

The integration of business types refers to the way different types of business activities can be combined or work together within a single organization. The video provides an example of a music production company that operates as a service business through concerts, a merchandising business through selling CDs, and a manufacturing business through producing CD albums.

💡Income Statement

An income statement is a financial statement that shows a company's revenues, expenses, and net income over a specific period. The video explains the basic equation of an income statement as revenue minus expenses equals net income, which is used to measure the profitability of service, merchandising, and manufacturing businesses.

Highlights

Introduction to the different types of businesses based on their activities and income generation methods.

Definition and explanation of a service business, which generates income by providing services for a fee.

Examples of service businesses, including barber shops, spas, travel agencies, IT solutions firms, and accounting services.

Explanation of merchandising businesses, which involve buying and selling goods.

Examples of merchandising businesses, such as grocery stores, fashion boutiques, and department stores.

Introduction to manufacturing businesses, which purchase raw materials and transform them into finished goods for sale.

Examples of manufacturing businesses, including ice-cream manufacturing companies and car manufacturing companies.

Integration of the three types of businesses, demonstrating how they can coexist within a single company or industry.

Analysis of a music production and recording company as an example of integrated business activities.

Case study of essential oils manufacturing and its integration with grocery stores and massage spas.

Explanation of income measurement for service companies using the income statement equation.

Income measurement for merchandising and manufacturing businesses, including the concept of cost of goods sold.

Example problem solving for a barbershop's net income calculation.

Example problem solving for a grocery store's net income calculation, including cost of goods sold.

Example problem solving for a car manufacturing company's net income calculation, considering materials, labor, and overhead costs.

Conclusion summarizing the three activities of business organizations: service, merchandising, and manufacturing.

Invitation for comments, suggestions, and lesson requests from viewers, emphasizing respectful communication.

Closing remarks and sign-off from the presenter, Cyril, with an encouragement for happy learning.

Transcripts

[Music]

hello everybody so in the last lesson we

learned about the different forms of

business organizations now we will be

discussing the different types of

businesses according to the activities

that they do and the manner in which

they earn income so these three types of

businesses according to activities are

service companies merchandising

companies and manufacturing companies so

let's start and let's discuss them one

by one a service business or a service

industry is a business that generates

income by providing services for a fee

so basically what happens in a service

business is that they provide their

services to their customers and then the

customers will pay them for the services

that they rendered okay so let's have

some examples of service companies okay

one example is a barber shop or a salon

so customers will go inside the barber

shop or the salon and then they will do

their services like they will be cutting

or styling the hair of the customers and

then after the service has been provided

then the customers will pay them for

what they did or the service that was

given to them okay we also have massage

therapies or our spas so foot spa or

massage so after the massage then the

customers will pay for the service that

was given to them also example of a

service business is a traveling tourist

agency so basically a travelling tourist

agency provides travel services to

customers so they will go in this

business they will go to Japan they will

go to Korea they will go to Italy and

then before or after the service has

been rendered then the customers will be

paying the travel agency for giving them

the service and what was the service

giving to them bringing them to those

wonderful locations

okay so those are

some examples and we also have

professional businesses okay for example

we have an IT solutions firm or

information technology solutions so IT

professionals renders services to

clients by creating systems or by

creating programs for their clients and

then their clients will be paying them

on the service that they gave also

another example our legal services so

basically lawyers renders their services

legal services to their clients and then

also they will receive a payment for the

legal services that they have rendered

and lastly the very best example is our

own profession accounting services

accountants provide services to clients

and the clients will pay these

accountants for the services that they

have rendered remember the definition of

accounting accounting is a service

activity so it is a very best example of

a service business so accounting firms

provide accounting services financial

consultancy tax services preparation of

financial statements bookkeeping and a

lot more services as related to

accounting okay so I hope you grasp a

nice understanding of what a service

business is let's go now to

merchandising merchandising is a type of

business of buying and selling of goods

a company purchases goods from a

supplier in which these goods will be

sold to customers buying and selling so

basically a company will buy first the

goods that they will sell to customers

so the best examples of a merchandising

business is a grocery store because a

grocery store will first purchase the

goods that they will sell from a

supplier and then they will put those

goods in the selling area and then what

will happen is the customers will get

those products from the selling area and

pay for them so what happens is that

they buy it first the company buys at

first and then they will sell them to

customers another one are fashion

boutiques and anything about clothes so

basically those are also merchandising

businesses well take a look at a mall

right so any mall some of them or

service businesses and some of them are

merchandising businesses so what are the

service businesses that you can see in a

mall like salons or those who provide

massage services and then what are the

merchandising businesses inside a mall

department stores or other boutiques

okay so it works that way okay so the

the things around this are actually the

very best examples of these businesses

okay let's not proceed to manufacturing

manufacturing is a company that

purchases raw materials and then these

raw materials will undergo a process

until it becomes finished goods to be

sold to customers so actually both

merchandising and manufacturing sells

goods to customers the only difference

is that in manufacturing the company

prepares the goods that they will sell

unlike in merchandising that they only

buy what they will sell so in

manufacturing there will be a process

that will be undergone by the raw

materials of a purchase let's take an

example an ice-cream manufacturing

company will first buy raw materials or

these raw ingredients those raw

materials are ingredients to make an ice

cream will undergo a process the ice

cream manufacturing process and then

after the ice cream manufacturing

process there we have it the finished

product and those ice cream will be sold

to customers another example is a car

manufacturing company the car

manufacturing company will first buy

spare parts car parts and other

accessories to create a car and then it

will undo undergo the car manufacturing

process and there you have it we have a

nice beautiful car and that will be

their finished product which can be sold

to customers so I hope that you

appreciate the three different

activities of business organizations now

let's analyze it in an integrated way

can these three types of businesses go

together let's take this case a music

production and recording company is

handling singers and talents these

singers and talents perform at concerts

produced by the company also the firm

has a record bar where they sell CDs of

different artists lastly the company is

also producing CD albums of the latest

songs of their singers okay and the tree

types go together the answer is yes look

at the case our music production and

recording companies handling singers and

then those singers perform at concerts

so concert performances is a service

activity and remember that the music

production and recording company also

operates a record bar and they sell a

lot of CDs there so that can be a

merchandising activity and lastly those

singers records their songs in a CD and

they also produce the CDs of the albums

of their singers so the production of CD

albums is a manufacturing activity let's

have another case can the three types

work as a system let's see this case a

manufacturer of essential oils produces

their products and sells them to

different groceries these groceries then

sells them to customers a massage spa

will then purchase these essential oils

for use in the massage therapy service

look at what happens the essential oils

company will manufacture essential oils

it they become the supplier of the

grocery which is a manufacturing

relativity and then the massage spa will

buy essential oils from the grocery and

they will use it for their services to

render massage services so it works as a

system from merchandising to

manufacturing to service this is a very

wonderful integration now how do these

companies measure the income that they

receive in service companies remember

the equation for the income statement

which is revenue minus expenses is net

income it works now this way in service

companies service revenue less operating

expenses is equal to net income this

means that we will match the revenues

that the company is earning minus the

expenses that they pay for to operate

the business that is your net income

while in merchandising and manufacturing

which sells goods you match sales

revenue with the cost of goods sold what

is a cost of goods sold how much did the

company paid for the goods that they

will sell in Tagalog combi Casa

sari-sari store communion mo I boom le

nom bullpen I eat in the necessary sorry

story Oh Cho pesos qunari that was

Bennington an endorser peso symbol pen

Eddie chambray anonyme are a unanimous

to move o non cuatro shogunate a on the

ball pen is eight pesos that is cost of

goods sold then it was sold to customers

at 12 pesos here 12 pesos is sales

revenue so 12 minus 8 gives you 4 4

pesos and 2 BA in English and an

accounting that is gross profit and then

the gross profit will be deducted to the

operating expenses of the company to

arrive at net income or loss so for

income measurement let's have some

examples problem number one a barbershop

earned 60,000 pesos during the month of

April salaries paid to barbers amounted

to 20,000 pesos

utilities paid for a 6,000 and rent of

the space for the barbershop is 5,000

how much is the net income of the

barbershop let's analyze the problem

remember that a service company will

have to earn income through rendering

services and truly enough in the month

of April they earn 60,000 for the

services they rendered however they need

to pay salaries for their barbers they

also need to pay for utility bills like

electricity and water and also if they

do not own their own space or their own

office then there will be a rent expense

so this will be a war computation

service revenue of 60,000 then deduct

all of the operating expenses that they

paid for salaries utilities and rent

which will total 31,000 and then you

match the revenue with the expenses that

has been paid revenue minus expenses

60,000 - 31,000 the company enjoyed a

net income of 29,000 during the month

it's easy right ok problem number 2 a

grocery store earn two hundred twenty

five thousand pesos from selling their

goods during the month of April these

goods sold were first purchased and an

amount of 160,000 salaries paid to

employees twenty five thousand utilities

paid as four thousand and rent of the

selling area is six thousand how much is

the net income of the grocery for the

month of April so look at this the goods

that they sold they earn two hundred

twenty five thousand that is their

selling price for all of the products

they sold however remember that

merchandising is a buying and

selling activity the goods that were

sold at 225 thousand pesos were first

purchased by the company at 160 thousand

so if you will be looking at it like

this it will be sales revenue is 225

thousand less cause of good so the 160

thousand they are in gross profit of

sixty-five thousand simply handed and in

Tagalog boom le I'm gonna sell animal

products neighbor ventanilla 160,000 top

assume 160,000 in unipi Nabila nila been

in hundred and two hundred twenty-five

thousand eighty two mobile Solana you

now 65 thousand

organ in lamb yard okay and then we

deduct the operating expenses of twenty

five thousand salaries four thousand

utilities in six thousand rent for a

total of thirty five thousand then we

will match them together 65 minus thirty

five net income is thirteen thousand

vessels easy divide okay probably number

three a car manufacturing company sold

two cars totaling three million pesos

during the month of April car parts and

materials used for these cars amounted

to six hundred thousand labor costs paid

amount amounting to eight hundred

thousand amounts to eight hundred

thousand and other indirect cost to

manufacture the cars amounted to one

hundred thousand salaries paid to office

employees fifty thousand utilities paid

is twenty thousand in the rent of

selling area of the office space is ten

thousand how much is the net income of

the car company for the month of April

now in manufacturing it gets a bit

complicated but let me explain that to

you remember that the cost of goods sold

is the amount that the company has

sacrificed in order for them to sell

these products however we are talking

about manufacturing here and in

manufacturing we need raw materials we

also need the production process in

order for them to have finished goods

okay so look at the problem yes we were

able to sell two cars and the total of

that is three million

so we earned three million as sales

revenue no problem with that however in

order for them to build the car engine

estas nila 600,000 materias the sempre

passes are in my yamaja a laborers Umaga

wanna watch a the total was 800,000 and

all other indirect cost like for example

the rent of the factory plant or the

salaries of the factory janitors

anything that is not really related to

the car but related to the production

process is called indirect costs or what

we call the overhead so remember that in

manufacturing process we have three

kinds of costs which pertains to the

cost of the goods which is materials

labor and overhead so in order for them

to make the car they what they sacrifice

is six hundred thousand pesos for the

materials eight hundred thousand pesos

for labor in 100 thousand for overhead

for a total of 1 million five hundred

thousand so in building the car they

sacrificed 1 million five hundred

thousand but they were able to sell it

at 3 million so on to boy the girls

profit would be 1 million five hundred

thousand then we go to the same formula

operating expenses let's get the total

salaries of fifty thousand utilities of

twenty thousand in rent of ten thousand

totals eighty thousand gross profit of 1

million five hundred thousand less

operating expenses of 80 thousand will

give you a net income for the amount of

1 million four hundred twenty thousand

it actually works the same way as in

merchandising it's just that we need to

take into account the materials that

were purchased by the company to make

the car and then the labor are the

salary of the laborers in making the car

and other indirect costs related to car

manufacturing ok so i hope that you

understood our lesson very very well so

these are the three activities

of business organizations service

merchandising and manufacturing so again

see you and the next video this is Cyril

was accounting lessons pH and I hope

that you're happy learning with me so

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thank you and have a great day

[Music]

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