merchandising

Definition

Activities aimed at quick retail sale of goods using bundling,

display techniques, free samples, on-the-spotdemonstration, pricing, shelf talkers,
special offers, and other point-of-sale methods. According to
AmericanMarketing Association, merchandising encompasses "planning involved in
marketing the right merchandise orservice at the right place, at the right time, in
the rightquantities, and at the right price."

Merchandising means selling products to retail customers. Merchandisers, also called

retailers, buy products from wholesalers and manufacturers, add a markup or gross profit
amount, and sell the products to consumers at a higher price than what they paid. When
you go to the mall, all the stores there are retailers, and you are a retail customer.

Retailers deal with an inventory: all the goods (products) they have for sale. They account
for inventory purchases and sales in one of two ways: Periodic and Perpetual. As the names
suggest these methods refer to how often the inventory account balances are updated.

In a Periodic system, inventory account balances are updated once a year (some
companies may do it more often, but all must do so at least once per year).

In a Perpetual system, inventory account balances are updated after each sale. This type of
system is much more complex. Scanning cash registers, bar coded merchandise, and
similar devices are used to update the inventory records after each sale. Obviously, this
type of system is very expensive, but it gives managers a high degree of control over
inventory, helps purchasing agents order replacement merchandise in time, detects and
deters theft and helps identify other problems relating to inventory.

The main differences between the two relate to the journal entries used to record purchases
and sales. The system a company chooses should be cost effective and provide the desired
levels of inventory management. Special journals are often used to record sale and
purchase transactions.

Accounts Used
You can usually tell whether a company is using the Periodic or Perpetual system by the
accounts they use to record inventory purchases. Here's a chart that shows the differences:
[COGS = Cost of Goods Sold]

Method >>> Periodic Perpetual

Account used to Purchases Inventory
record inventory
purchases:
Appears on: Income Statement Balance Sheet
When a sale is No adjustment to inventory is Merchandise cost is transferred
made: necessary; merchandise cost is from Inventory to Cost of Goods
already on the Income Statement Sold -an Income Statement account
Year-end Adjust Inventory balance to Adjust Inventory balance to agree
procedures: agree with year-end physical with year-end physical count and
count and merchandise value merchandise value
Other procedures: Transfer Purchases balance to Balances should now be correct
Cost of Goods Sold

Physical Inventory
The "physical inventory" simply means the actual, real, tangible, touchable stuff the
company has for resale. In the case of a manufacturing company, the physical inventory
includes raw materials, the value of goods in the process of production, and the value of
finished goods (Chapter 16).

Taking a physical inventory means counting the number of units of stuff you have for sale.
This is usually done at the end of the year, so the balance sheet Inventory amount
accurately reflects the true value of the ending physical inventory.

If you run a grocery store, you would count all the cans, packages and containers of food,
and everything else you have available for sale. You would then have to assign a value to
everything: it's cost to you when you bought each item. A small piece of your inventory
records might look something like the one below.

Quantity is the number of units on the shelf, and also in boxes in storage; this is the amount
we counted in taking the physical inventory. Unit Cost is what was paid for each unit of
product. The extension column is the total cost of each item.

Item Quantity Unit Cost Extension

soup, tomato, can, 8 oz 65 .24 15.60
soup, chicken noodle, can, 8 oz 79 .21 16.59
soup, cream of mushroom, can, 8 oz 53 .16 8.48

Once all items are counted, priced and extended, the total cost is the ending value for
Inventory.
Adjusting the Inventory Account
The Inventory account usually does not agree with the physical count. If the Periodic
method is being used, the Inventory account has the balance as adjusted at the end of the
prior year. If the Perpetual method is being used, the Inventory account should be close to
the physical value calculated from the physical inventory count. There will always be a
difference, and the accounts must be adjusted so the Inventory account agrees with the
physical count and valuation. You will study valuation methods more in Chapter 8.

The Inventory account is adjusted to agree with the physical count and valuation. Let's look
at an example of how the adjustment is made. The Inventory account has a balance of
$12,500. You take a physical count and calculate the correct inventory value is $11,975.
You will decrease inventory by $525 to adjust the Inventory account the equal the actual
physical inventory value.

General Journal

Date Account Debit Credit

Dec-31 Cost of Goods Sold $525
Inventory $525
To adjust Inventory to year-end
physical count and valuation

General Ledger
Inventory
[a Balance Sheet account]

Date Description Debit Credit Balance

Jan-1 Beginning balance forward 12,500 12,500
Dec-31 Year-end adjustment 525 11,975

Cost of Goods Sold

[an Income Statement account]

Date Description Debit Credit Balance

Dec-31 Balance 100,000
Dec-31 Year-end Inventory adjustment 525 100,525

The adjusting entry correctly uses an Income Statement account and a Balance Sheet
account. The additional merchandise cost is transferred to the Income Statement in this
case, but the reverse adjustment could just as easily be made.
Inventory Shrinkage
If you throw a good wool sweater in a washing machine full of hot water, what will
happen? You ladies already know the answer to that question. If you're a guy you may need
to ask you wife, girlfriend, sister, or mother. Go ahead.... we'll wait.......

OK, now that you know the sweater will shrink, or get smaller. Guys, if you do this to your
wife's favorite cashmere sweater we'll be forwarding your mail to the doghouse for the next
month or so.

Well, inventory also shrinks. But not because we washed it in hot water. In fact inventory
shrinkage occurs for a number of reasons, and it is just as it sound - inventory gets smaller.
But how should this happen? Things happen to merchandise while the store has it available
for sale. Here are some of the things:

Theft - by employees or customers

Spoilage - milk, meat, vegetables, past the expiration date
Obsolescence - computers, software, clothing (last year's styles)
Display - merchandise put on display often can't be sold later or must be discounted
Grazing - customers or employees eating food available for sale
Damage - broken bottles, bent cans, frozen foods left out of the freezer

The sum total of all these items contributes to the difference between the Inventory account
and the physical count. There might also have been errors made in the Inventory account
during the year, adding to the difference.

A true story about grazing

I used to live in Tucson, Arizona and went to school at the University there. I lived on
North Park, pretty far up the road near the north end of town. Near me was a Lucky
grocery store, where I shopped a couple of times each week. Every time I would go there I
would see people wandering around the store posing as customers. They would push a cart
down the aisles, collecting a few items along the way.

A typical scenario I have observed with my own eyes:

• take a couple of slices of bread (leave the rest of the loaf on the shelf, opened
• open a package of cold cuts, take a few slices, leave the package
• tear off a couple of pieces of lettuce, leave the rest of the head behind
• get one plastic knife from a package of 20, ditch the other 19 somewhere
• put some mayo and mustard on the sandwich, return jars to the shelf
• get a beverage and have lunch
• top it off with a piece of fruit for dessert

The cart is abandoned, along with the empty beverage container, and the grazer leaves the
store. This may sound extreme, but I've seen this done on a regular and repeated basis. It is
a real problem is many areas, especially in cities and in large stores. Grazing is a form of
theft. If you pop a grape in your mouth, you are grazing too.
Special Sales and Purchase Accounts
Merchandisers use a few special accounts. When a sale is made, sometimes the customer
returns merchandise for a refund. We do not reduce the sales revenue account. We enter the
refund in a different account. This is done to help track the number and dollar amount of
these types of transactions.

Sales accounts deal with customers and sale transactions

• Sales Returns and Refunds

• Sales Allowances
• Sales Discounts

Purchase accounts deal with suppliers and purchase transactions

• Purchase Returns and Refunds

• Purchase Allowances
• Purchase Discounts

Notice the close similarity between the account titles. They are almost identical, but apply
on opposite sides of the purchase and sales cycles. Sales accounts are used in conjunction
with selling merchandise and dealing with customers. Purchase accounts are used in
conjunction with buying merchandise and dealing with suppliers.

By tracking these types of transactions in their own account managers have the opportunity
to better understand their business. Are too many refunds being given? Why? Are we
buying defective merchandise from a certain supplier? Are Sales Allowances cutting into
our gross profit too much? Are we taking advantage of our Purchase Discounts when
available?

The key to business profits is to identify each and every item that can be improved, and
then improve it. Managers can raise prices. But they can also cut costs, reduce waste,
increase efficiency, take discounts when available, and many other things to improve the
profitability of their business.

Freight In vs Delivery Expense

Freight In is the cost to have merchandise shipped to your store. Freight In is a cost of
purchasing merchandise, and becomes part of Cost of Goods Sold in the Income Statement.
Sometimes a company has to pay a separate charge for Freight In. At other times the cost
may be included in the cost of merchandise from the supplier. In any case, the cost of
Freight In is added to the cost of the merchandise.

example:
XYZ, Co. buys 100 units of Product R for $7500. The trucking company charges $500 for
the shipment. The total cost of the merchandise is $8000. Each unit costs $8000 / 100 =
$80. They should set their selling price based on a cost of $80.

Delivery Expense is the cost to ship or deliver merchandise to your customer after a sale.
Delivery Expense is a Selling Expense, and is included under that caption in the Income
Statement.
© 1999-2010 Copyright Malcolm E. White, Fulton, Missouri, USA For personal
educational use only. All rights reserved. No part of this tutorial may be reproduced or
stored in any way without permission. Contact webmaster at mwhite@middlecity.com
 D. Data Gathering
E. Scoring Method
F. Statistical Instruments Use
Questionnaire:
You Are:
Male
Female
What year are you in college?
1st year
 2nd year
3rd year
4th year
5th year
Don’t know
How would you describe your grades on average?

AA-

BB-

CDDon’t know
How far in advance do you start studying for finals?
One month
Two weeks
One week
Days before
The night before
What time of day do you do the most studying?
Morning (6 a.m. to noon)
Afternoon (noon to 6 p.m.)
Evening (6 p.m. to 9 p.m.)
Night (9 p.m. to 12 a.m.)
 Late night (12 a.m. to 6 a.m.)
On average, how many hours do you study for finals?
20-24 hours
15-19 hours
10-14 hours
5-9 hours
1-4 hours
What is your favorite way to study?
Repeating points out loud
Writing index/flash cards, then using them
Writing outlines
Highlighting text
Studying in a group
Going to review sessions
Other, please describe:
Where is your favorite place to study?
Dorm room
Bedroom
Dorm common room/lounge
Library
Coffee shop
Outdoors
Parents’ home
Campus pub/bar
Student union
Other, please describe:
Do you do any of the following while studying?
Drink caffeinated drinks?
Yes
No
f yes, then why?
Relieves stress and tension
Increases focus and concentration
Combats boredom
Chew gum?
Yes
No
If yes, then why?
Relieves stress and tension
 Increases focus and concentration
Combats boredom
Eat snacks?
Yes
No
f yes, then why?
Relieves stress and tension
Increases focus and concentration
Combats boredom
What is your favorite music to study to?
Alternative
Blues
Classical
Country
Dance
Electronic
Folk
Hip Hop/Rap
Jazz
Pop
R&B/Soul
Rock
None
What is your favorite study break?
Exercise
Watching TV/movies
Surfing the Internet
Napping
Socializing
Socializing
Playing video games
Praying/meditating
Other, please describe:
Do you feel increased stress or anxiety leading up to exam time?
Yes
No
Do you have a good luck charm or ritual you perform before exams?
Yes
No