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3 Tutorials that teach Merchandising
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Merchandising

Merchandising

Author: Evan McLaughlin
Description:

In this lesson, the student will learn about merchandising operations.

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Tutorial

"Merchandising"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792

Video Transcription

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Hey, everyone, and welcome to today's video, on merchandising. So what are we discussing, today? Well, today's going to be all about merchandising. We're going to discuss what it is-- getting a consumer to pay us, the merchandiser, for goods. So that's merchandising. And we're going to talk a little bit more about that, today. We're going to look at some of the specific accounts involved, when we're doing the accounting for a merchandising company. And then we're going to finish up, today, by doing a calculation of cost of goods sold.

But let's talk more about merchandisers and what it is that merchandisers do. So what is merchandising? It's buying products for resale to customers, rather than selling services. So you're purchasing products for resale to customers, rather than selling services.

So what do merchandisers do? Well, they purchase inventory. So what is inventory? Inventory is the products that a company owns for resale to customers. So it's that selling inventory. So what do merchandisers do? They purchase inventory, and then they sell that inventory to customers.

So some examples. So some examples of merchandisers that you can think of, and some examples of service companies. So merchandisers that sell goods-- so they're purchasing products to resell to customers-- would be department stores or grocery stores. So they're purchasing these goods, to resell them to the consumers. And services would be things like tax preparers, repairmen-- so where you're paying someone to provide a service to you, rather than providing a good to you. So that's what merchandising is, and that's what merchandisers do.

So now, let's talk about some of the specific accounts that are involved, when we're dealing with a merchandising company. So which additional accounts do merchandisers use? Well, one of the accounts that they use is inventory. So what is inventory? Inventory is the products that a company owns, for resale to consumers. So these are the products that a company owns, that they then resell to their customers. It's the financial value of product held, for resale.

Another account is cost of goods sold. So what is cost of goods sold? It's the cost of inventory that a company has sold, during a given period. It's the dollar value of what it cost you for the units you have sold. So cost of goods sold is the cost of the inventory that was sold, during the period. And it's important that it's the cost of what was actually sold, not how much you sold it for.

And our last account that we're going to look at is FOB-- Freight On Board. Now, what is FOB? What's freight on board? It's freight terms that designate whether the buyer or seller pays the freight, and when ownership is transferred to the buyer. So there's two types of freight on board. There's FOB destination, which is when the ownership does not transfer until it arrives at the store. So once it's in the possession of the merchandiser, that's when the ownership is transferred. That's FOB destination.

And then there's also FOB shipping point. That's when ownership transfers as soon as it leaves that shipper. So, as a merchandiser, when you buy something, if it's FOB shipping point, that means that you own it as soon as it leaves that shipper, whereas FOB destination, as a merchandiser, you don't have ownership of those goods until it arrives at your store. So those are three of the unique accounts that merchandising companies will have to use-- inventory, cost of goods sold, and FOB, or freight on board.

So now, let's look a little bit closer at that cost of goods sold-- at that second account. And let's look at a calculation of cost of goods sold. So merchandising company and cost of goods sold. Now, remember, cost of goods sold is the cost of inventory that a company has sold, during a given period.

So what information do we need? We need to know the number of items in inventory, what's available, and what was sold. And we need to know the cost of those items. OK? So we're calculating cost of goods sold. So we need to be able to know the cost of the items that we have in inventory.

So let's just look at a basic example of calculating our cost of goods sold. So, available. What's available? We purchased 1,000 couches for $100 each. So we're a merchandiser, and we purchased 1,000 couches for resale to the customer, and it cost us $100 per couch. So that's $100,000.

Sold. So what did we sell? We sold 500 couches, for $200 each. So that's also $100,000. So, of those 1,000 couches, we sold 500 couches, and we received $200, from our customer, for each couch.

Now, how do we calculate cost of goods sold? The focus, here, is on the units that we sold. OK? So we're trying to calculate cost of goods sold. So we sold 500 couches, but that cost $100 each. So we're not worried about the $200 we got for selling them. It's that we've sold 500 couches, and they cost us $100 each.

So that means, in this case, in this example, our cost of goods sold would be $50,000. 500 couches sold, times the $100 purchase price of each of those couches. So that's a calculation of cost of goods sold.

So let's summarize what we talked about, today. In a nutshell, we talked about what is merchandising. We looked at inventory; now what is inventory? Inventory is the products that a company owns, for resale to customers. So it's the financial value of products held for resale.

We also looked at cost of goods sold. What's cost of goods sold? That's the cost of inventory that a company has sold, during a given period. So the cost of inventory that was sold, during a given period.

And lastly, the last term we looked at, today, was FOB, or freight on board. So what is that? That's freight terms that designate whether the buyer or seller pays the freight, and when that ownership is transferred to the buyer. In FOB destination, you don't own it, as a merchandiser, until it arrives at your store. In FOB shipping point, you own it as soon as it leaves the shipper-- so as soon as it leaves their shipment facility.

I hope everybody enjoyed this video, and I hope to see you next time.

Notes on "Merchandising"

Terms to Know

Merchandising

Buying products for resale to customers, rather than selling services.

Inventory

The products that a company owns for resale to customers.

Cost of goods sold

The cost of inventory that a company has sold during a given period.

FOB

Freight on board, freight terms that designate whether the buyer or seller pays the freight and when ownership is transferred to the buyer.