What is the difference between the flow of products and cost in a manufacturing organization to the flow of products and cost in a service and merchandising organization, please provide an example?
The flow of products and cost differs between manufacturing organizations and service/merchandising organizations. Let's start with the manufacturing organization:
In a manufacturing organization, the flow of products refers to the sequence of processes involved in converting raw materials into finished goods. This usually involves multiple stages, such as procurement of raw materials, production, quality control, and distribution. As for the flow of cost, it represents the expenses incurred at each stage of the manufacturing process, from raw material procurement to the final product.
For example, consider a car manufacturing company. The flow of products would start with the procurement of steel, rubber, and other raw materials. These materials then go through various processes like cutting, welding, painting, and assembly to produce the finished cars. At each stage, costs like material costs, labor costs, and overhead costs (e.g., machinery maintenance costs) are incurred and contribute to the overall cost of manufacturing the car.
Now let's explore the flow of products and cost in a service/merchandising organization:
In a service organization, the flow of products is intangible as it involves the provision of services rather than physical products. For instance, think of a travel agency that offers vacation planning services. The flow of products here would refer to the different steps involved in providing their services, such as customer inquiries, travel booking, itinerary planning, and providing travel advice. However, there are no physical goods being manufactured or distributed in this process.
Regarding the flow of cost, it includes the expenses associated with delivering the services. For the travel agency example, the costs would primarily involve employee salaries, marketing expenses, rental costs for office space, and possibly commissions paid to other service providers (e.g., hotels or airlines).
In a merchandising organization, the flow of products involves the buying and selling of physical goods rather than manufacturing them. These organizations source products from manufacturers or wholesalers and sell them to consumers or retailers. The flow of cost in such organizations includes the expenses incurred in purchasing the goods, storing them, and selling them.
For instance, consider a clothing store. The flow of products would include activities like purchasing clothes from suppliers, storing them in inventory, and displaying them in the store. The flow of cost would involve costs related to buying the clothes, store rent, employee salaries, marketing expenses, and any costs associated with maintaining the inventory, such as storage fees or insurance premiums.
In summary, the key difference lies in the nature of the products (physical or intangible) and the associated processes (manufacturing, service provision, or merchandising) in each type of organization, which consequently impacts the flow of products and cost.