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Chapter 3

Chapter 3. Operating Processes: Planning and Control. What are the Goals of the Revenue Process?. Provide customers with products/services they want at a price they are willing to pay Receive payment from customers in a timely manner

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Chapter 3

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  1. Chapter 3 Operating Processes: Planning and Control

  2. What are the Goals of the Revenue Process? • Provide customers with products/services they want at a price they are willing to pay • Receive payment from customers in a timely manner • Provide customer support before and after the sale to ensure future sales

  3. What are the 5 Primary Activities in the Revenue Process? • Determine marketing and distribution channels to generate sales • Receive and accept orders for goods and services • Sales discounts • 3/30, n/60 • Deliver goods/services • FOB shipping versus FOB destination • Who pays? • Receive payment from customers • Provide customer support • Sales returns and allowances

  4. Generate Sales • Companies use two important sources of information to determine which products and services meet customers needs • 1. a marketing analysis of customer buying habits • 2. surveys of customer preferences • Visa, MasterCard, American Express, Sears

  5. Exercise 3-5 Answer Answer • Eddie Bauer accepts Visa, MasterCard, Discover, and American Express as well as its own Eddie Bauer charge cards. Assume that Visa And MasterCard charge a 1.8 percent processing fee while Discover and American Express charge a 3.5 percent processing fee. During the period, the following charge card sales occurred at a particular Eddie Bauer Store (no payments were made by customers). • Visa 8,650 • MasterCard 10,625 • Discover 6,175 • American Express 2,130 • Eddie Bauer 25,843 • What is the net amount of cash received from charge sales during the period?

  6. Answer to 3.5 • Visa (8,650 * 0.982) 8494.30 • MasterCard ($10,625 * 0.982) 10,433.75 • Discover (6,175 * 0.982) 5,958.88 • American Express (2,130 * 0.965) 2,055.45 • Total 26,942.38

  7. Receive and Accept Orders • When an order is received the company must do two things • 1. determine the credit and payment policies for the customer • 2. determine if the goods are available. Terms 3/30, n/60 1/15, n/30

  8. Deliver Goods and/or Services • Sales may occur where the customer is not present, such as a phone order • Shipping can be done on common carriers • Shipping agreement is called a bill of lading. • Sets out the rules • FOB Destination--- legal title does not pass until the customer receives the goods • FOB Shipping point ---legally they belong to the customer once the carrier picks them up.

  9. Exercise 3.1 Answer • E. 3-1 • On Dec 29, 2009, Wolfe Company ships $100,000 of merchandise by common carrier to the Audio Midwest Company. The terms of the sale 2/15, n 30, FOB destination. It takes five days for the merchandise to arrive at Audio Midwest. Wolfe and Audio Midwest have December 31 year ends. Which company should report the merchandise on their balance sheet? Why?

  10. Answer 3-1 • Title passes at the destination (buyer); therefore, Wolfe owns the merchandise at the end of the year.

  11. Exercise 3-2 Answer • Refer to E 3.1. What is the available sales/purchases discount? When is it available?

  12. Answer 3-2 • The discount of $2,000 ($100,000 * 0.02) is available if Audio Midwest pays its bill within 15 days.

  13. FOB Destination and Shipping

  14. Deliver Goods and Services (con’t) • When does the company recognize the sale of goods shipped goods on December 31, 2009? • FOB Shipping point • FOB Destination

  15. Receive Payment from Customer • Sales Invoice • It is important for the company to fill customer’s orders completely, including back-ordered items. • Two copies of an invoice are often sent and the duplicate is returned with the payment as a remittance advice. • Prices of items on the invoice should be taken from an approved price list.

  16. Sales Invoice

  17. Provide Customer Support • Free to customers • Web site • 800 numbers • Sales returns • Sales allowances

  18. Revenue Process

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