沃顿商学院全套笔记-十三-

沃顿商学院全套笔记（十三）

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P162：19_存货19 59.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello， I'm Professor Brian Bouscher。 Welcome back。

We are now going to turn our attention to inventory。

We're first going to talk about inventory for manufacturing firms， which is much more。

difficult and complicated to account for than inventory for retail firms， which is what。

we've seen so far。 We're also going to start to talk about some of the assumptions you need to make to figure。

out cost of goods sold and the cost of the goods still held in ending inventory。 So let's get to it。

Let's start by reviewing the accounting for inventory for a retail firm， which is what。

we saw with the relic spotter inventory earlier in the course。

So the first step is you go out and buy inventory， which means you debit inventory。

Those are your purchases that increase the inventory。

And then you credit either accounts payable or cash， depending on whether it's bought。

on account or with cash。

Then when you sell the inventory， you credit inventory as the goods sold reduces it and。

you debit cost of goods sold， which is the expense that shows up on the income statement。

We also earlier talked about the difference between product and period costs。

So the product costs are the inventory costs， which are matched to revenue， but then selling。

general and administrative costs directly go into SG&A expense when we incur them。

Now what we're going to talk about is how this looks for a manufacturing firm， so a company。

that actually makes the inventory as opposed to buy it。

And we just have to make a few small changes。

So as you can see， we need to add three accounts in the middle。 I can't remember。

How do you expect us to understand this mess？ Okay， I know。

How about we go through a detailed example of how this works？

So the first step is going to look just like what we saw for the retail firm where we're。

making some initial purchases， but instead of purchasing goods that we can turn around。

and sell， as in the case of a retail firm， the first step is that we purchase raw materials。

And so we create an inventory account that's titled raw materials。

What types of items are considered raw materials？ Well。

raw materials would be any materials that are not cooked。 Yeah。

so raw materials are any materials that are going to be used in producing the product。

So if we were making eyeglasses， it would be the metal for the frames， the glass for the， lenses。

the screws， the little nose pads that are here， all the pieces that go into making。

the final product。 To make our walk through this flowchart a little bit more interesting。

let's talk about an。

example of a company and see how these flows work with some real numbers。

So Kirby Manufacturing Incorporated， their first transaction is they're going to purchase。

865 raw materials of raw materials on account。

And I guess to make it even more interesting， why don't I throw up the pause sign here and。

have you try the journal entry before I give you the answer。

So the answer here is that we're getting raw materials。 Raw materials inventory is an asset。

so it's going to increase with a debit， debit raw materials。

865 on account， which means accounts payable， accounts payable is a liability。

We make a liability go up with a credit， so a credit accounts payable for 865。

And then in our T accounts we're going to post the increase in the payable and the increase。

the debit in raw materials。 And then I've got on here the next step。

which is as we use materials in manufacturing， those。

materials come out of the raw materials inventory account and they go into the work and process。

account。 So the next journal entry， transaction 2。

Kirby uses $806 of raw materials inventory and manufacturing。

So why don't you try to come up with the journal entry for this。

So what's going to happen here is we're going to put these raw materials into this new inventory。

account called work and process。 So we debit work and process for 806。

We take these out of the raw materials inventory account。

That's an asset， so we reduce it by a credit。 Credit raw materials for 806。

If I understand this correctly， all you're doing is moving from one inventory account to， another。

There is no transaction with outsiders。 Do you have to do this journal entry every time you use a raw material in production？

You're correct。 So when we put the entire transaction with outsiders， external parties。

it's completely， an internal transaction。 And so it's just like an adjusting entry。 And in fact。

we're probably going to do this as an adjusting entry。

It wouldn't make sense to do this entry every time we move a little bit of raw materials。

into production。 Because the only time this breakdown matters is when we put together financial statements。

So at the end of the period， when it's time to put together financial statements， then。

we will count up how many raw materials we've used in production and do this as an adjusting， entry。

So when we post this journal entry to the T-accounts， we reduce or credit the raw materials and。

we increase or debit the work and process inventory account。

Now we're going to have more stuff come into work and process as we're starting to produce。

our product。 We're going to have direct labor and overhead。

What is this overhead？ Do you also have to account for underfoot and against the wall？ Good one。 No。

we do not have to account for underfoot or against the wall， only overhead。

Overhead is a catch-all term for any cost of manufacturing that's not materials or labor。

So it would include things like the electricity for the factory， the water bill， heating and。

air conditioning， insurance that you have to take out against employee injuries or theft。

and depreciation on the plant and equipment used。 Because one of the costs that we want to make sure we get into the cost of producing these。

goods is the depreciation on the machinery used to produce the goods。

So let's see how Kirby would account for direct labor and overhead。

So three transactions here， Kirby paid $524 cash for the labor that went into manufacturing。

Kirby paid $423 of cash for power， heat， light and other overhead， and Kirby recognized $81。

of depreciation for plant equipment。 So let's do the journal entry step-by-step starting with number three。

So here we're going to debit work and process inventory to increase it by 524， and since。

we're paying cash， cash goes down， we credit cash。

So now try number four， Kirby paying $423 cash for power， heat， light and other overhead。

Journal entry here is going to be the same。

The debit work and process inventory for $423， and credit cash since we're paying cash for。

$423。

Now try number five， Kirby recognized $81 of depreciation for plant equipment。

The journal entry here is we're going to debit work and process inventory for $81 to recognize。

this cost as part of the cost of producing the inventory。

And credit accumulated depreciation by $81。 Remember there's a contra asset。

so crediting increases the accumulation， accumulate depreciation。

which is reducing the netbook value of our plant equipment。

If I recall correctly， at the 10 minute and 13 second mark of video 2。2。1， you said that。

the journal entry for depreciation is always debit depreciation expense and credit accumulated。

depreciation。 What is this debtbook work and process stuff？ Well， when I said always。

I clearly met until we get to the video where we talk about inventory。

accounting for manufacturing firms。 So the depreciation on the machinery and equipment is going to be a product cost。

which means， we want to store it in inventory until we sell the product when we recognize revenue on the。

product。 Then we take the cost of the product and show them as an expense， cost of goods sold。

To do that， we can't debit depreciation expense， which would immediately put this on the income。

statement。 Instead， we're going to debit the inventory account work and process to help store up。

these costs。 So yeah， in this situation， we actually do have a debit to an inventory account instead。

of debit to depreciation expense。 That'll always be the case when depreciation is a product cost。

So then we would post all these to T accounts。

Notice on the left， I added accumulated depreciation as one of the accounts that gets a credit。

So we're not just acquiring inventory or putting things in work and process with credits to。

cash and credits to accounts payable。 We also have that credit to accumulated depreciation for the depreciation that goes into the manufacturing。

process and hence goes into work and process。

Then once we finish producing the goods， they're all ready to be sold。

We're going to take the costs out of work and process。

So we're going to credit work and process and move them into finished goods。

So with debit finished goods。

So for Kirby， they finished manufacturing goods that cost 1，960。

What's their journal entry for this transaction？

We're going to debit finished goods inventory， 1960， to increase this asset。

And credit work and process inventory for 1962 reduce the costs that are kept in the work。

and process inventory。 So the finished goods account is like what we have been calling the inventory account。

in prior videos， except instead of the inventory balance being the cost of purchasing inventory。

the balance is the cost of manufacturing the inventory。 Exactly。

I couldn't have said it better myself。

So now let's look at how these flow through the T account。 So work and process goes down。

is credited by 1960 and finished goods is increased by。

1960。 The next step is that we're actually going to sell the finished goods。

And when we sell the finished goods， we're going to take it out of the finished goods。

inventory account and recognize the cost as cost of goods sold on the income statement。

So now we've got transaction 7 and 8 for Kirby。 Kirby sold 2862 of goods to customers on account and the goods cost 1938 to manufacture。

So the journal entry for number 7 would be。

So this is the transaction for the revenue piece。

So we debit accounts receivable for 2862 because it's on account。

We're not getting cash instead we're getting the promise that the customer is going to。

pay us in the future。

And we credit sales for 2862 to recognize the revenue for the goods at the selling price。

Now try to do number 8。

So hopefully you remember this from earlier in the course。

You debit cost a good sold the expense for 1938 and we credit finished goods inventory。

1938。

How do you keep track of the cost of the specific goods that you just sold？

Do you have a tea account for every individual like a manufacturer？ No。

you do not have to keep track of a tea account for every individual goods you produce。

Instead you have to make some assumptions。 So we'll talk about a little bit in this video and then in the subsequent videos is the kind。

of assumptions you need to make to assign costs to the goods that you have sold。

And then let's put these in our tea accounts at least from the not the revenue but at least。

the inventory side。 We reduce finished goods and we increase costs to get sold。

And then of course selling at administrative costs directly going to SG&A expenses。

And this chart basically shows you how a manufacturing firm acquires materials and services。

It's a long time between the cash or the accounts payable or accumulated appreciation for acquiring。

materials and services actually turns into an expense。 It has to flow through raw materials。

work in process and finish goods inventory before。

it actually shows up on the income statement。

So what I'm talking about next is getting to this question of how do we know the cost。

of the goods we sold versus the cost of the goods that we still have in inventory。

And there's a basic equation for this which is that the cost of goods available for sale。

which is what you start with in your beginning inventory plus any new inventory acquired during。

the period has to equal the cost of goods you sold and the cost of goods that you still。

hold which would be your ending inventory。 Now the tricky thing is that beginning inventory is known because it's the ending inventory。

from last period。

New inventory is known but the other two are going to be unknown。

So new inventory is known because for retail firms it's just the cost of purchasing goods。

So whatever the total invoice amount was for the goods you purchased that's going to。

go into the new inventory。 Or for manufacturing firms it's just the flow chart we looked at a second ago where it's。

all of those costs of producing goods during a period go into the new inventory。

But where we need some kind of assumption is how to figure out either cogs or ending。

inventory once we figure out one we can plug the other。

There's basically as always two different methods that you can do it。

There's the periodic system which says that at the end of the period you count up all。

your inventory， figure out how much inventory you have and then you plug cost of goods sold。

Or the perpetual system which means you track cost of goods sold as sales are made and then。

you plug ending inventory because it's got to be whatever is left over。

Do companies really count every single piece of inventory just so they can calculate cogs？

It seems much easier to track what you sell。 Some companies use some of that newfangled computer technology to keep track of all the。

goods they sell as they sell them。 They still have to count inventory at least once a year to get non-revenue sales。

A non-accountant would call theft。 So if a customer or employee steals your inventory they're not going to let the computer system。

know to record it。 The only way that you're going to find out is at least once a year you've got to count。

what you have and then take a write-off of any inventory that you can't find that's， been stolen。

I should also note before we move on that the periodic versus perpetual system helps figure。

out how many goods you have versus how many goods you sold。

But in terms of what the actual costs are we're going to have to make some additional。

assumptions and those additional assumptions are going to take up all the rest of the videos。

in the week。

But before we get to that part there's one more topic I want to do on this video which。

is another thing you have to think about in valuing that ending inventory。

So the ending balance of inventory must be carried at the lower half historical cost。

or fair market value which is what we're going to call lower of cost or market or LCM。

Historical cost is the original cost of either purchasing the inventory for your retail firm。

or producing the inventory for your manufacturing firm。

Fair market value was generally thought of as the cost to replace the inventory given。

current market prices。 How do you determine the replacement value of the inventory？

Is this a number that accountants just make up off the top of their head？

Actually management is responsible for making up this number off the top of their head。

So clearly replacement value replacement cost is not an exact number but management should。

be in a position where they can estimate how much it would cost to either remanufacture。

the product or reacquire the product if they're a retail firm。

And usually when you see these write downs it's obvious that the value of the inventory。

has dropped below what it is on the balance sheet。

So even though we can't get an exact number any write off is better than no write off when。

it's clear that the value of your inventory has dropped。

So once you have these two values calculated historical cost and fair market value if historical。

cost is less than fair market value than the ending inventory stays at original cost you。

don't need to change anything and no adjusting entry is needed。

You certainly don't write it up in value because it's lower of cost or market。

What you have to worry about is if this fair market value or replacement value drops below。

historical cost then your ending inventory has to be valued at this replacement value。

So you need to do an adjusting entry to write down your inventory and it's essentially。

going to be debit cost of goods sold for the amount of the write down credit inventory。

for the amount of the write down。

So our inventory account on the balance sheet is going to drop to replacement value and then。

the amount of the write down will show up as an additional expense on the income statement。

Now one key international difference comes up here under US GAAP once inventory is written。

down to fair market value essentially that becomes the new historical cost。

It can't be later written up to its original cost if the market value subsequently rises。

So the way to think about it is once you write it down that's the new historical cost。

and then you start looking at historical cost versus future fair market values。

But under IFRS if you write inventory down you can actually write it back up to the amount。

of the original cost。 You just can never write it over the original cost。

So one little difference that we haven't yet ironed out between US GAAP and IFRS。

So now that we've started to talk about the assumptions you need to make to figure out。

cost of goods sold and the cost of the inventory we still haven't addressed the question of。

how do you figure out the costs of each individual good that you sell。

Well that's going to take a lot of assumptions and those costful assumptions are what we're。

going to tackle in the next video。 I'll see you then。 See you next video。 Bye。 [ Silence ]。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P163：20_后进先出法与先进先出法23 11.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello and Professor Brian Boucher。 Welcome back。 In this video we're going to talk more about inventory cost flow assumptions。

And if you've ever been curious about what LIFO and FIFO means， this is the video for。

you because we're going to go through LIFO versus FIFO in detail。 Let's get started。

We have to start out with a key assumption。 And if you don't keep this assumption straight。

you're going to be confused for much of this， video。

The key assumption is that inventory cost flows do not have to follow the physical flow of， goods。

So we talk about our inventory equation， that beginning inventory plus new inventory equals。

cost of goods sold plus ending inventory。 If we think of physical flow of goods。

let's say we sell something like bananas， it's probably。

the case that we're selling the oldest bananas first and keeping the newest bananas in ending。

inventory。 So for the physical flow of goods， the goods in ending inventory are whatever specific。

goods that we haven't sold yet， probably the newest bananas。

But for the flow of costs and costs are what we're actually running through the T accounts。

and journal entries， the costs in ending inventory could either match the original cost of the。

goods， so be the exact cost of every banana that we hold at any inventory。

It could be the most recent cost incurred， so the cost of the most recent bananas we bought。

during the period。 It could be the oldest cost incurred。

so it could be the cost of the bananas that we bought。

a long time ago or an average of costs over time。 And three is often the one that people have trouble with。

How could we use the oldest costs in ending inventory when we have probably the newest。

goods we produced？ And the reason is that the physical flow of goods。

the actual bananas we hold in the， inventory， doesn't have to match the costs of those specific bananas。

We can make a different assumption of how cost flow versus how the physical flow of goods， flow。

Does that make sense？ Hopefully。 So there are a number of ways that we can do these inventory cost flows。

First one is specific identification， which would mean we specifically identify the cost。

of each product sold and the cost of each product held in inventory。 With computer technology today。

I think companies should have to keep the accounts for each individual， good。

giving me a compelling reason why any master does and specific identification should， be used。 Okay。

Here's a compelling reason。 What if you made toothpaste or you manufactured salad dressing or gasoline？

Then how are you going to use specific identification there？

How can you track a specific gallon of toothpaste or a specific gallon of salad dressing？

You really can't。 So in that case， you'd have to use some kind of assumption about cost flows other than specific。

identification。 Even with computer technology these days。

it still would probably take up a lot of data， processing capacity to keep track of millions and millions of products with their individual。

costs。 So these cost flow assumptions just make things easier to keep track of without detracting too。

much from providing a picture of how much your inventory and cost of goods sold really。

cost to manufacture。 Another method that companies could use。

and this is probably one of the most common methods， is FIFO。 First in， first out。

That means that the oldest inventory costs go into cost of goods sold first。

So the oldest inventory costs are the first one into inventory。

And so they're the first ones to go out to cost of goods sold。 And because of that。

the ending inventory is going to reflect the newest costs of the， inventory that we acquired。

The opposite way to do this would be LIFO， which is last in， first out。

So here the newest inventory costs are going to go into cost of goods sold first。

So the last cost to come into inventory through our most recent purchases or most recent manufacturing。

are the first costs that we pull out into cost of goods sold。

And so what's left in ending inventory are the oldest costs。

The cost that we incurred potentially a long， long time ago， because what we're doing every。

period is we're taking out only the newest costs， leaving behind the oldest cost of manufacturing。

or acquiring inventory。 If I understand you correctly， you're insane。

Now would a company sell the newest products first？ They would always sell the oldest ones first。

otherwise they become obsolete。 Exactly。 A company that sold bananas or milk could never use LIFO。

Just think， I think is a rare house， would become with all of that old product。

You forgot that assumption from the prior slide。 The physical flow of goods does not have to match the flow of costs。

So even a banana company could use LIFO without having a stinky warehouse。

Certainly they would sell the oldest bananas first and the newest bananas would be kept。

in inventory。 That's the physical flow of goods。 But in terms of costs。

you could still use LIFO and use the newest costs of bananas acquired。

as cost of goods sold and have the oldest costs of banana be ending inventory。 So again。

the physical flow of goods doesn't have to match the flow of costs。

And the last method that we could use for handling inventory costs flow is weighted average。

where we have an average cost of inventory going into cogs and into ending inventory。

And in practice， weighted average ends up giving results that look a lot like FIFO。

So I'm not really going to talk about weighted average。

Instead， I'm just going to focus on the comparison between FIFO and LIFO。

So I saw this advertisement， I don't know about 13， 14 years ago， in a lavender catalog。

which was called Inventory Management for Newspapers。 What are these things called newspapers？

Is that what Grandpa talks about when he said that you used to have to get news delivered。

on paper to your door in the morning？ Yes， prior to the Netscape IPO in 1995。

which popularized the internet， many people actually。

got their news by getting physical pieces of paper called newspapers delivered to their。

door every morning and sometimes in the evening。 So while you were 10 years old playing video games and eating Cheetos。

when your grandfather， was 10 years old， he was out delivering these newspapers at the crack of dawn earning a。

nickel a day。 So I'm sorry for the stale example here。

but it's good for you to learn a little bit of， ancient history every now and then。

Going back to our newspaper， Charlie example， LIFO would be a system where you would pull。

newspapers from the top anytime you wanted to read a newspaper， which would leave all。

the old newspapers at the bottom still in your inventory of newspapers， which is probably。

how I would do this。 But that's the physical flow of goods。

The way you really want to think about this is think about each newspaper as an invoice。

So anytime you pay money for materials， labor， overhead， anything to acquire inventory， you。

put an invoice in the trolley。 LIFO would say that you pull the invoices or costs from the top。

those go into cost of， goods sold。 The invoices that are still at the bottom are the ones that are left in inventory。

which， are the older invoices。 LIFO， which is how this is intended。

is you pull the newspapers from the bottom， leaving， the most recent newspapers still in inventory。

Now again， thinking about this in terms of costs， if this was a stack of invoices， LIFO。

would say pull invoices from the bottom， which means that you're taking the first or the oldest。

invoices in inventory out to cost of goods sold。 And what's left in your inventory is the most recent invoices or the most recent costs。

So that's the difference in LIFO and FIFO with flow of costs。 Again。

remember it's not flow of goods， but it's flow of costs。

What I want to do now is throw some numbers at this and do an example of how LIFO and。

FIFO can affect the cost of goods sold and the ending inventory。 So in our basic example。

in 2010 we're going to buy five units of inventory。 So to make it simple。

we're just going to be a retailer。 We buy five units， we buy one in January， March， June， September。

and December。 And as you can see， we're in an industry where prices are rising dramatically throughout the。

year so that the January unit only costs us $10， whereas by December it'd cost us $30。

Under FIFO we have to figure out what are the costs and what are the ending inventory。

if we sell three units。 So we're going to sell three units which means that the first costs that we acquired are the。

first ones to go out into costs。 So that would be the $10， the $15。

and the $20 coming up to a total of $45 for cost of， goods sold。

What's left in inventory are the September and December units which are $25 and $30 for。

a total of $55 in ending inventory。 Now if we sell those same three units but use LIFO。

now what we do is we take the last， costs in as the first costs out。

So the last three costs in are the $30， the $25， and the $20 which adds up to a cost of， $75。

What's left in inventory are the first costs we acquired， the January and the March， $10。

plus $15 which means their ending inventory is $25。

So there's a difference of $30 in both of our costs to both our costs to goods sold and。

our ending inventory between LIFO and FIFO。 Okay， you'll get different numbers for costs。

Close these costs。 It is what it is。 You are telling me that a simple accounting choice can have such a big effect on profits。

Well for costs you can't use the old it is what it is because every time you look at costs。

of goods sold in a financial statement it's the product of certain assumptions of how。

inventory costs flow。 The company could have made different assumptions and it would have been a different number。

So there is no absolute truth or absolute standard for what COGS is。

It's a product of assumptions and the assumptions could be changed and you'd get a very different。

costs。 So keep in mind when we go through this this is not a trivial decision because it could。

have a big impact on COGS and hands-on unit income。

Continuing on to 2011 we're going to come into 2011 with different beginning inventories。

depending on whether we did FIFO or LIFO as we saw from the prior slide。

So FIFO has the most recent costs in inventory。 LIFO has those oldest costs in inventory。

In fact another term for LIFO could be fish first in still here and FIFO could be lish。

last in still here。 Although many people refer to LIFO as LIFO backwards which would be awful because it's。

an awful way to do accounting。 Anyway so we come in with very different beginning inventory and then we purchase three units。

during 2011。 Again prices are rising so we purchase a unit in February for $35 April $40 October for $45。

So now we're going to look at FIFO and LIFO separately for FIFO where we sell three units。

during 2011 again。 First in first out so we grab those first three costs from inventory 25 30 and 35。

Let's become our cost of goods sold first in first out， cost is 90。

These last two purchases of inventory the last two costs are what stick around an ending。

inventory so 40 plus 45 gives us an ending inventory of 85。

Now if we sell three units under LIFO here's what it's going to look like last in first。

out so we start at the right we go back three units so 45 40 35 our cost of goods sold is， 120。

Our ending inventory are those first costs that we acquired first in still here。

Our ending inventory is still just 25 so when we compare the two the difference in， COGS is 30。

LIFO is 120 versus FIFO of 90。 Higher COGS for LIFO reflecting that prices have been going up during the year so the last。

cost in are higher than the first cost in and there's an enormous difference in ending。

inventory 25 versus 85 which is reflecting the entire increase in prices since we started。

building inventory since those costs in LIFO are the first costs that we ever acquired whereas。

the cost in FIFO are the last costs that we required。 You are insane。

It simply is not plausible that companies could have such different values on the same。

goods and inventory。 LIFO must require you keep the older goods。

I am not insane and in fact this does happen in the real world。

LIFO came into the US sometime after World War II so if you look at companies that have。

been around since before the 1940s in their ending inventory some of those costs could。

reflect cost from the 1940s the 1950s the 1960s so yeah you could have some really really。

old cost still in inventory even though of course the goods are not still there but。

don't worry we'll see a disclosure later which will allow us to adjust for that age。

difference in costs and find out what inventory would be using more recent costs。

Okay let's finish up this example so in 2012 we're not going to buy any more units we're。

just going to sell what we have and go out of business。

So under FIFO when we sell those two units we just take those two costs out of beginning。

inventory and our cost of goods sold is 85。 For LIFO when we sell our beginning inventory our cost of goods sold is only going to be。

25 which means our cost is going to be $60 less than it would be under FIFO if we use LIFO。

so LIFO cost is 60 less than it would be under FIFO。

The low LIFO cost in 2012 is due to dipping into the old LIFO layers of inventory so。

anytime you sell more inventory than you produce you end up dipping in or going back to these。

old costs under LIFO that's called a LIFO liquidation and it has to be disclosed in。

the financial statements because it has such a dramatic effect on cost of goods sold and。

it income basically giving the company an extra $60 of pre-tax income this year。

So when your company says it is having a liquidation sale does that refer to LIFO inventory？

Not necessarily a liquidation sale just means that you're selling a lot of inventory。

We use the term LIFO liquidation because you see this happen when you sell more inventory。

than you produce which is what often happens when you're having a liquidation sale but。

you can have a liquidation sale without having LIFO inventory。

So let's take a look at a summary of the cost of goods sold over time from this example。

So as you can see in 2010 and 2011 FIFO had lower cost of goods sold by 30 each year。

but then in 2012 FIFO has 60 higher of cost of goods sold which means that the total cost。

of goods sold over the three years is identical。 So LIFO versus FIFO is going to change the timing of cost of goods sold but over the。

life of the firm total cost of goods sold are going to be the same either way。

Based on this chart I would think that every company uses FIFO it gives you lower cogs。

in every period except the last but by that point you are。 You are dead。

John Maynard can said in the long run we are all dead。

Wow that's a cheery quote to inject into a LIFO FIFO video。

My key point is that cogs are going to be the same either way over the total life of， the firm。

Yes it's true if for some motivation you wanted lower cogs earlier on FIFO would deliver， that。

But there is actually a good reason that you might want higher cost of goods sold earlier。

on and lower cost of goods sold later as you get under LIFO and I am going to talk about。

that on the next slide。 So let's talk about why it would matter whether a company uses LIFO or FIFO。

So when inventory costs are rising which is generally the case in inflationary economies。

generally prices go up over time so inventory costs rise。

This under LIFO is higher and ending inventory under LIFO is lower as compared to FIFO。

Now if it was the case that inventory costs were dropping over time then this would be， reversed。

Cogs under LIFO would be lower and ending inventory higher。

But more common case is inventory costs are rising over time due to inflation， cogs under。

LIFO is higher。 In the US tax reporting allows you to do LIFO。

lower taxable income due to higher cost of， goods sold would mean lower taxes。

And the rule in the US is that if you use LIFO to take advantage of this potential tax。

break then you also have to use LIFO for financial statements。

So it's called the tax conformity rule。 This is one place where tax reporting and financial reporting does have to match up。

If you use LIFO for taxes you have to use that on the financial statements。

So let me bring back that summary of cost of goods sold from the example to show you how。

these tax savings could work out。 So in the first two years 2010 and 2011 LIFO is giving you lower pre-tax income of 30。

And in 2012 LIFO gives you higher pre-tax income of 60。

Let's assume the US tax rate is 35% on this income which means that under LIFO you're。

going to pay $10。5 fewer taxes in 2010 and 2011。 So those lower pre-tax income due to the higher cost of goods sold means lower taxes paid。

But then in 2012 when we have the LIFO liquidation and your pre-tax income is 60 higher under。

LIFO you end up paying an extra $21 of taxes。 So you might be thinking well so what you save some taxes now you pay more later but。

if it's inflationary then a dollar today is worth more than a dollar in the future。

So you'd rather save taxes now than save taxes in the future。

And we'll talk about time value money more later in the course。

But an easy way to think about this is you could use LIFO save $10。5 of taxes in 2010。

Use those tax savings to buy a high-performing stock which then returns the 10。5 plus a 10%。

return on an investment。 So when you have to pay the extra taxes in 2012 you sell your investment。

You have plenty of cash to pay not only the taxes but you also get a return on the cash。

that you've invested over time。 The only catch to this is that IFRS does not permit the use of LIFO。

As a result the US is the only major country that still allows LIFO。

Let me get this straight。 The US is the only country in the world that allows LIFO。

LIFO is not allowed under IFRS so why are you wasting our time teaching it to us？

Let me answer that。 America is the most vital， important and dominant country in the world。

Who cares about euphoria？ This is a good time to remind you that the opinions expressed by Professor Brian Bush。

A or by his virtual students do not represent the views of the Wharton School， the University。

of Pennsylvania， its management， employees， families or casual acquaintances。

These opinions solely represent the views of Professor Bush A and his virtual students。

We apologize in advance if you have been or will be offended by their comments。

We ask that you direct all complaints， criticisms， disputes and legal actions to Professor Bush， A。

Having said that， we hope you are enjoying the course。

Let's return to the video， joined in progress。 But anyway， even if you're outside the US。

it's still important to learn LIFO because， if you end up comparing a non-US company to US company and the US company is using LIFO。

there's some adjustments you need to make in order to do a reasonable comparison across。

companies and we're going to talk about those adjustments in the next video。

I think I should wrap up here because I have an urgent voicemail on my phone for some reason。

But anyway， in the next video， we're going to talk about comparing firms that use LIFO。

to firms that use FIFO， looking at a disclosure to see what information you need to pull out。

of the disclosure and then that you would use to adjust the LIFO firms that you can compare。

the two firms despite the differences in inventory methods。 I'll see you next time。

See you next video。 Bye。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P164：21_存货披露示例11 14.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello and Professor Brian Boucher and welcome back。

In this video we're going to take a look at a disclosure of a company that uses LIFO。

One of the things that you may have to do at some point is compare a firm that uses。

LIFO to a firm that uses FIFO。 If you do that you need to convert the LIFO firm to a FIFO basis to make any kind of reasonable。

comparison between the two because the ending inventory and the cogs are so different between。

the two methods that you really can't compare them without adjusting the LIFO firm to the。

FIFO basis。 So let's see how that happens。 Let's get started。

To facilitate the comparison of LIFO and FIFO firms， LIFO firms have to disclose what their。

inventory costs would be under FIFO。 Another way we can convert all of the results for the LIFO firm to a FIFO basis。

And that's the only direction we can go。 There's no way that we can convert a FIFO firm to LIFO。

If you think about it it would be a pretty daunting task because a company that's always。

done first and first out would have to go back and look at its entire history of inventory。

purchases to redo it under last in first out。 But if you're doing it last in first out it's fairly easy to transfer those results to。

first in first out。 So what we're going to get into this disclosure is something called the LIFO reserve。

The LIFO reserve is the difference between what the ending inventory would be under FIFO。

first in first out and what the inventory is under LIFO which is what they disclose on。

the balance sheet。 To adjust the income statement we can use the fact that the change in the LIFO reserve。

is equal to LIFO COGS minus FIFO COGS。 So what we're trying to figure out for the LIFO firm is what its COGS would be under。

FIFO。 So that means that FIFO COGS would equal LIFO COGS which is what was disclosed in the income。

statement minus this change in LIFO reserve。 And then translating that to net income the FIFO net income is going to be LIFO net income。

plus the change in LIFO reserve times one minus the tax rate。

We have to multiply the change in LIFO reserve times one minus the tax rate to get an after。

tax version because with net income we're looking at an after tax number。

And notice that when we're dealing with COGS we subtract the LIFO reserve but with net。

income we add it because COGS is an expense whereas net income is revenue minus expenses。

And the last things I have up here are tax savings during the current year are the change。

in the LIFO reserve times the tax rate and the tax savings cumatively over the whole。

LIFO firm would be whatever the balance in the LIFO reserve is times the tax rate。

Sorry， I zoned out for a second。 What is that triangle thing and when would we ever have to do this again？

Yeah， I think I zoned out myself while reading the words on that slide。

Page of formulas is not fun and I think if I had spent even more time trying to explain。

the intuition it would have made it even less fun。

So to answer your question the triangle is the Greek letter delta which means change。

You will have to use formulas like this if you're ever looking at a LIFO company and。

want to compare it to a company that uses FIFO。 Basically the inventory method has such a distorting effect on ending inventory and cost of goods。

sold that the only way you could get a reasonable comparison of those firms would be to convert。

the LIFO firm to FIFO which we're going to do right now in an example。

So let's take a look at an example of a LIFO disclosure。

So we're going to look at KP incorporated which manufactures flux capacitors and if you don't。

know what those are you can just pause right now and search on Wikipedia。

KP uses the LIFO method so if we want to compare KP's results to compare their financial。

statements to firms that use the FIFO method we have to switch KP from LIFO to FIFO。

Cost of goods sold for KP were 18-55 during 2012。 Companies tax rate is 35%。

Questions that we're going to try to answer from the disclosure are what is the FIFO value。

to the inventory that allows to compare balance sheet of KP to a balance sheet of a company。

that uses FIFO。 What would be the FIFO COGS in 2012？

So if we want to compare the income statement between KP and a FIFO firm putting KP on a。

FIFO basis will facilitate the comparison and then we're going to see how much in taxes。

KP saved during the year。 So here is the disclosure in the footnotes。

The thing I want to point out before we get into the LIFO stuff is this is what the disclosure。

looks like for the breakdown of raw materials， work and process and finish goods。

So if you remember a couple of videos ago we talked about how manufacturing firms have。

these three buckets of inventory。 Looks like in KP situation their raw materials and work and process are both up。

Their finished goods are down slightly which probably means they're ramping up production。

work and processes up。 They ordered more raw materials so maybe they're anticipating even more sales or more production。

and their finished goods are down which probably means they're having no trouble selling their。

inventory。 So those all indicate that the company is growing well。

Now let's take a look at the LIFO disclosure。 So we want to figure out what the LIFO value of the inventory is。

The formula is that the FIFO inventory is going to be the LIFO inventory plus the LIFO， reserve。

So we see the LIFO value of the inventory at the bottom line 518 and 540。

Less revaluation to LIFO that's the terminology for LIFO reserve。

So in 2012 we take 518 plus 102 to get to 620 and for 2011 we take 540 plus 63 to get， to 603。

Now the LIFO reserve is in brackets and that is representing that it's a credit balance。

and we're not going to get into the journal entries so don't worry about it but it's negative。

because it's reducing 620 minus the LIFO reserve to 518。

But when we look at these equations we just treat the LIFO reserve as a positive number。

So we take 518 plus 102 to get to 620 and as you notice the 620 and the 603 the 518。

FIFO value of the inventory is actually disclosed by KP even though they don't label it as the。

FIFO value。 Now let's look at what FIFO COGS would have been in 2012。

So here the formula is FIFO COGS is LIFO COGS minus the change in the LIFO reserve。

So FIFO COGS is 1855 which is what we saw before it was something that was given with， the problem。

You could also find this from the income statement。 The change in the LIFO reserve is 102 minus 63。

So again we're ignoring the brackets we're just taking 102 minus 63 and we subtract that。

from 1855 to get FIFO COGS of 1816。 So the FIFO COGS are 39 less than the LIFO COGS。

Shall I infer from this example that COGS and the LIFO is always greater than COGS and， to FIFO？ No。

please don't infer that from this example。 The only reason that LIFO COGS are greater than FIFO COGS is that prices have been rising。

If prices of inventory have been dropping then LIFO COGS would be less than FIFO COGS。

So think of it this way， LIFO is last in first out so LIFO is very sensitive to the direction。

of price movement。 If prices are going up LIFO COGS will be higher。

if prices are going down LIFO COGS will be， lower。

Now the last question we want to answer is how much did KP save in taxes in 2012 by using， LIFO？

Now the formula before is that the tax savings are equal to the change in LIFO reserve times， 35%。

Change in LIFO reserve is again 102 minus 63。 That's the 39 that was the difference in COGS that we saw before。

So LIFO gave you higher COGS by 39。 If we take 35% of that that's the tax savings based on that higher expense。

And those tax savings come out to be 13。65。 Now it doesn't indicate here but these numbers are in millions。

So that's a tax savings of $13，650，000 for KP。

Those are some nice tax savings。 Why does the US government allow companies to use LIFO？

It is like letting them cheat on taxes。 Yes， those are some really nice tax savings。

So why does the US government allow it？ Well it's probably because the companies that get those tax savings take some of those。

tax savings and donate them to senators and congressmen that in turn vote to keep LIFO。

on the books。

Sorry that was probably a bit too conspiratorial so just ignore that prior comment。

But there is right now an active discussion about whether companies should get this tax， break。

In fact in the most recent budget proposed by the administration in the US there is a proposal。

to eliminate LIFO as a way to raise additional taxes。

Now there is heavy lobbying against that and the government here has seemed unable to pass。

a budget for years。 We are sort of living off these continuing resolutions。

But it is at least up for debate and it may be that at some point the US government also。

gets rid of LIFO as a way to close this loophole and sort of take away this advantage of companies。

to earn significant tax savings。 So now that I have just mentioned that the US government may get rid of LIFO as well I。

should probably cut my losses and stop talking about it given that it may go away within。

the next year or so。 But anyway that wraps up our look at inventory。

All we have left for the week is our look at the 3M Company， 3M Company Finance statements。

where we will take a look at their accounts， stable and inventory。 I will see you then。

See you next video。 Bye。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P165：22_3M公司的应收账款和存货17 50.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Hello， I'm Professor Brian Boucher。 Welcome back。 In this video。

we're going to take a look at the accounts receivable and inventory， disclosures for the 3M Company。

But then， since those disclosures are not going to be that exciting， we're also going。

to bring in a couple guest star companies。 We're going to bring in Best Buy。

another Minnesota Company， to take a look at their， disclosure for the Allowance for Bad Dats。

And Honeywell， which used to be a Minnesota Company， now it's based in New Jersey， will。

bring in their financial statements to take a look at their inventory disclosure。 Let's get started。

Let's start with the balance sheet， which is on page 48 of the 3M report。

Here they report their accounts receivable， 4061 and 3867。

Those are net of allowances， and they give you the allowances right here， 105 and 108。

So one of the things that we calculated in the videos was what percent of the gross accounts。

receivable does the company not expect to collect？

So what's the percentage estimated on collectibles？ And has that gone up or down over time？

So we can do that for 3M。 In 2012 we would take 105 divided by not 4061， but 4061 plus 105。

which is 4166。 We want 4166 because that's the gross accounts receivable。 So 105 divided by 4166。

We could probably all deal in our head。 That's 2。5%。 We could do the same thing for 2011。

We would take 108 as the allowance， divided by 108 plus 3867， which is 3975。

So 108 divided by 3975 is 2。7%。 So 3M's expected on collectibles has gone down slightly from 2。

7% to 2。5%， which is not， surprising because just by looking at the numbers here we can see 108 was a bigger allowance。

but it was on a smaller net balance。 So even though the allowance has gone down at the same time that receivables have gone。

up。 Now we're going to look for more accounts receivable information in a second， but since we're。

here， why don't we go ahead and take a look at inventories。 So on 3M's balance sheet。

they give you the breakdown into finished goods， work in process， raw materials and supplies。

And what we see is each category is growing， consistent with a growing company， so they're。

bringing in more raw materials towards the end of the year than they had at the beginning。

of the year。 They're building up their work in process over the year and they're building up their。

finished goods inventory， presumably in anticipation of future demand。

but we can actually see whether。

that's the case。 So that's what we can see about accounts receivable and inventory on the balance sheet。

Okay， we'll make a quick stop on the cash list statement。

So here we have the change in accounts receivable。 So accounts receivable have gone up。

so that's a negative number on the cash list statement。 But as if you remember。

when we look through the cash list statement， we didn't see any。

provision for doubtful accounts or bad debt expense。

So 3M is using the alternative where this accounts receivable is the change in the net。

number。 So instead of breaking up bad debt separately and then showing the change in the gross。

they just show the change in the net。 And as we've talked about before。

this change of 133 is not going to match the change that。

we saw on the balance sheet because some of this accounts receivable could have come。

in an acquisition or there could be foreign currency involved。

The next part of the financial statements you always want to check out is note one， significant。

accounting policies to see how they do the accounting for accounts receivable and inventory。

If we go to page 53， you'll see a note for inventories。

And 3M says inventories are stated at lower cost or market， which is not a surprise because。

that's the rule。 You always have to carry it at lower cost or market。

And they say cost determined on a first in， first out basis。

So 3M uses FIFO for all of their inventories。 So we're not going to get any of those interesting LIFO disclosures in 3M。

And it also， for this reason， 3M doesn't have a separate inventory footnote because they've。

shown you the breakdown of raw material work and process， finished goods on the balance， sheet。

They're using FIFO so there's no kind of LIFO related disclosures。

So they actually don't have a special footnote for inventories。

And if we jump ahead to page 55， there's a section for accounts receivable and allowances。

So trade accounts receivable are recorded in voiced amount， but do not bear interest。 That's common。

Maintaining allowance for bad debts， cash discounts， product returns and other items。

So we talked about the bad debts。 We didn't talk about product returns。

If you allow customers to return some of their goods for a full refund， you have to make。

an allowance for that at the time of sale。 The accounting works exactly the same as the allowance for bad debts。

where you would basically， create the contract asset account to keep track of expected product returns。

And then when their returns come in， you would get rid of the accounts or see when。

you get rid of that allowance。 So there's really nothing new to look at there。

It's just changing bad debts to product returns in the product stuff that we've done。

So for allows for doubtful accounts， they say it's based on their best estimate of probable。

credit losses。 They do it based on historical write-off experience by industry and regional economic data。

And they use historical sales returns for the product returns。 Nothing that new or interesting here。

Last place that 3M talks about accounts receivable in inventory is on page 35， which is part of。

the MD&A。 There's a little bit of a mention of working capital in inventory as they talk about their。

working capital。 They say receivables increased 5% compared to the prior year。

driven by an increase in， fourth quarter sales， so its growth。

They also had some acquisitions that brought in accounts receivable and some foreign currency。

adjustments。 Inventory increased by 12% with increases partially attributable to an increase in demand in the。

fourth quarter of 2012。 I guess they must be building more inventory in response to the demand。

There were also some acquisitions that added to the inventory and currency translation effects。

So the currency translation effects and the acquisitions are why we don't see the balance。

sheet change match the change on the cash flow statement。

And that's all I could find about bad debt and inventory in the 3M report， which means。

there was something very interesting that they left out。

You know what it is？ What's missing is that 3M never discloses in their report what their bad debt expense。

is。 How can they get away with that？ Well there's something called the materiality principle。

which says that if an item is so， small that its disclosure would not change how investors view the company。

then you don't， need to disclose it separately。 For instance。

you never see paperclip expense on an income statement。

Paperclip expense is just lumped in with the SGA expense。

So you can assume in a case like 3M if they're not disclosing bad debt expense， it's very。

small and you could treat it as effectively zero if you're doing some of the calculations。

that we've done during this week。

Now let's take a look at our special guest company Best Buy for how they treat their。

accounts receivable and bad debts。 So on their balance sheet they have a receivables number and notice it doesn't say anything about。

allowances here。 Now when we look at these balances which are 2704 at the end of the year。

2288 at the， beginning of the year。 Those are still net balances。

You just don't know what they're net of because there's no disclosure of the allowance here。

If we go to Best Buy's cash flow statement， up here in the things that we add back we might。

see provision for doubtful accounts or bad debt expense added back， we don't see it。

So they're using the technique where they just take their change in net receivables and。

they don't break out bad debt separately。 But then what Best Buy provided was something called schedule 2。

Now this used to be required for all companies but now the SEC says you don't have to do this。

anymore and Best Buy still does it and this is where they put all of their information。

and their allowances。 So notice they have here allowance for doubtful accounts。

they have a beginning balance and， an ending balance。

So this is the spot where they're showing you the allowances that that balance sheet number。

is net of。 So remember the balance sheet number at the beginning of the period was 2288 which means。

that the balance and growth at the beginning of the period was 2288 plus 72 equals 2360。

At the end of the period the net number of the balance sheet was 2704。

If we add 92 we would get 2796 for the gross amount。

One of the things that we can now do though is we can figure out cash collection from。

customers because we have bad debt expense and more importantly the write offs and recoveries。

which is the number that we need to plug into that accounts receivable account to try to。

get at cash collections。 So if we set up a T account what we're going to do is have a beginning balance of 2360。

This is in accounts receivable and by the way if there's anybody taking this class who。

works for Adobe and you can figure out a way in the next update to avoid it catching。

this thing all the time so I have to escape。 Please feel free to add that update that would be awesome。

Anyway so when our accounts receivable we have 2360 beginning balance 2796 as our ending。

balance write offs and recoveries were 14。 We put those on the credit side。

Now this is write offs and recoveries so it's net of that so we don't have to worry about。

finding separate recoveries this is just the net number。

And so what we can do then is plug in sales on the debit side of the T account so hang。

on I'm going to flip back to the income statement for a second。

Here's revenue 4505。 So we can put 4505 here on the debit side and then the only thing that we're missing is。

cash collection from customers so we can plug that answer as 44635。

Now if we hadn't been able to find these write offs recoveries we would have been pretty。

close we would have only been off by 14。 You can always you know even if you can't find that you can do it as an approximation。

but this gives you a little bit more exact number on the cash collection from customers。

by best buy。 So if you don't see allowances on the balance sheet one thing to look for in the report。

is there may be a separate schedule which gives you all the details on both the balance。

and the allowance and the bad debt expense which you can then use to do your calculations。

One thing I find interesting comparing best buy to what we saw with 3M is that if you。

calculate the percent of best buys allowance as a percent of gross accounts receivable。

it's about 3。1% in 2011 and 3。4% in 2012 which is not that much bigger than 3M's 2。7% but。

yet 3M is saying it's immaterial and not disclosing it whereas best buy we are getting a disclosure。

I think what's going on here is best buys in the retail segment and I think there's。

probably more demand from investors and analysts to keep up on bad debt expense in the retail。

segment than there is in the manufacturing segment where 3M operates。

So I think there's a category an example where investors must not care that much about。

3M's bad debt expense whereas best buy it is something they want to see even if it's。

small so they can track trends over time or compare to other retailers。

Now let's take a quick look at our other special guest company Honeywell。

So on their balance sheet they disclose inventories 42。35 at the end of the year 42。

64 at the beginning， of the year they don't provide the breakout of raw materials work in process or finish。

goods and if you ever see a manufacturing company that doesn't provide that breakout。

they probably have a separate footnote where they give that breakout later which is what。

we'll see with Honeywell。 There's a summary of significant accounting policies if we go down to inventories we can。

see inventories are valued at the lower of cost or market no duh they're always valued。

at the lower of cost or market using the first in first out or average cost method so FIFO。

or weighted average and the LIFO method for certain qualifying domestic inventories。

So why does Honeywell use different methods because they're a multinational company and。

inside the US they could use LIFO or these other methods outside the US they don't have。

much of a choice because they can't do LIFO it's either FIFO or average cost and so what。

Honeywell must realize is that they can get some tax savings in the US by using LIFO so。

they use it here for certain inventories but then outside the US they have to use either。

FIFO or average costs。 So if we go to the next page of the excerpts there's a footnote for inventories and here。

it is the breakdown of raw materials work and process and finished goods then we have。

a subtotal reduction to cost basis this is the LIFO reserve and then we have below that。

the total inventory this is what shows up on the balance sheet this is the balance sheet。

that includes LIFO。 Now notice it's not all LIFO but it includes the LIFO valuation of the inventories that。

are on LIFO which means that this number above the reserve is what it would be under。

FIFO or weighted average which is what they also use。

And then down below they say inventory is valued at LIFO amount of 2， 325 and 302 this。

325 is how much of that inventory is carried at LIFO。

So as you can see the vast majority of their inventory is not carried at LIFO it's FIFO。

or weighted average but this LIFO reserve of 197 or you can get the number here it applies。

to that 325 of inventory。 So you can actually see there's been some pretty big price movements because the LIFO。

reserve is a big chunk almost two thirds of the value of this ending balance of LIFO inventory。

which means that they've historically gotten a lot of tax savings in the US by using the。

LIFO inventory。 One last thing is if they had a LIFO liquidation so they sold more LIFO than they produced。

and it helped their cost to get sold that would be disclosed here but if you don't see any。

mention of a LIFO liquidation it means that they didn't have one and so there was no benefit。

to their cost to get sold or earnings due to a LIFO liquidation during the period。

I guess I should apologize to the state of New Jersey I was watching back the intro notice。

that I sneered a little bit when I said New Jersey I actually love New Jersey go there。

every weekend in the summer to enjoy its beautiful shore so I sincerely apologize state of New。

Jersey。 Probably a good time to wrap up this week so that's the end of our week on accounts receivable。

and inventory。 Next week we're going to do some videos on ratio analysis and you'll get a chance to。

do the mid course exam。 I'll see you next week。 [Silence]。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P17：16_设计交流运动.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

In this module， we are going to talk about how one goes about designing a communications。

campaign。 Professor Babrakhan in her earlier module spoke to you about what are the various components。

of a go-to-market plan。 She talked about five C's and four P's。

One of the P's of course was product design。 The next one was pricing。

The third one she discussed which again we went into greater detail was about distribution。

The one that we are going to focus on today is promotions。

So what does promotions include in terms of decision making？

One part of promotions is communication strategy。 In communication strategy。

we either use mass or targeted media that could be TV， digital， print。

outdoors and that includes advertising。 It could also。

communications could also include things like product placement and also public， relations。

And then we also have within the field of promotions what we call as personal and interpersonal。

means of communication。 That's through sales force or word of mouth。

Word of mouth can be from consumer to consumer。 It can be offline or online。

We also communicate with the consumer at the point of purchase oftentimes。

We can install promotions online when somebody comes to our website， they see a sticker which。

says this is on sale。 The other way to promote one's products or services is through non-communications means。

And that is either through price discounts or coupons。

In this module we are primarily going to focus on communication strategy and that's through。

mass and targeted media。 But I think it's worthwhile for a moment to just talk about a few of the things that we。

are not going to go into detail that are also useful。 For example。

what do we mean by product placement？ Oftentimes when I ask this question people say it's where you place the product in the。

store。 That's not what product placement is。 Product placement is placing your product or service in a television series or a movie。

like the BMW car in a James Bond movie。 That's what we call product placement。

Now why companies use product placement？ Because there is a belief that anything that looks like advertising is actually less effective。

than something that is somewhat indirect。 So seeing a BMW car in a James Bond movie doesn't seem like usual advertising and there。

is a belief amongst advertisers and communications people that anything that's not in your face。

is actually more effective。 Let's talk a little bit about public relations also。 Public relations。

I think we all know what the word means。 Oftentimes people say public relations is something that's free。

Public relations is not really free。 What is really free in the public relations part is that you don't pay for the media。

which means you don't pay for time and space。 But creating an activity that deserves public relations and media mentions is reasonably。

expensive。 So this is an area that can be managed quite well。 It's very effective。

but it is not an area where you actually pay for either time or space。

Personal and personal communication is a very powerful means of promoting your products。

and services。 This can be done through sales force。 It can also be done through word of mouth。

one customer talking to another and this can， be managed quite well。

Pharmaceutical companies have managed this for years even before online came into existence。

And even today with online， when you actually measure the word of mouth， 80% of word of。

mouth is actually offline person to person and only 20% is today online。

Let's now reflect back on our communications campaign design， which is either through Mars。

or targeted media。 So in this module， we'll focus on a few things a little bit more。

One is what role does communications play in our marketing strategy。 In other words。

for most of you， you might use an advertising agency or a communications， agency。

How do you get the best out of them？ We'll spend some time on how do you actually design a message。

Media planning and budgeting also deserve attention， but in this session， we will not。

talk too much about that。 We'll spend quite a bit of time on measuring the effects of your communications campaign。

and then summarize with some key lessons。 Let's start with an example。

Many of you may have seen the milk campaign that was a very popular campaign。

This was done by the California Milk Board in 1992。 So what did they find？

When they talked to consumers， they basically found most people like milk。

They also felt milk was healthy。 Kids felt milk is cool and fun。

Teens felt milk makes you strong and beautiful， but yet when you looked at the data in terms。

of what was happening to milk consumption， it was going down rapidly。

At a time when people felt good about the product， at a time when people felt it was。

a cool product， yet when you looked at the actual consumption， it was going down， not。

just slowly but quite a bit。 And milk producers were very concerned about this。

So they started looking into what is the cause of the problem and what is the remedy。

As they looked deeper， what they found was people wanted to drink milk， but often they。

didn't have milk at home。 They felt that based on these interviews and focus groups。

that if you could just convince， people to have milk at home， consumption will go up。

And this is true not just for milk。 People have found this in other product categories also。

For example， soft drink companies have found it in their studies that if you have more。

cocola at home， you will drink more of it。 Same way， shampoo。

if you have more shampoo left in the bottle， you will consume more。

So if you look at the amount of shampoo people pour on their hand before they put it on their， head。

it's very closely related to how much shampoo is left in the bottle。

When you have a new bottle of shampoo， you pour more on your hand。 When very little is left。

you pour less。 Of course， less is also just fine， especially for people who don't have that much here。

but， still the consumption of shampoo is related to how much you have at home。

Milk producers found the same thing that if people just had more milk at home， they would。

drink more。 And the idea was then how do you say it in a very creative and a memorable way so that。

people would actually have milk at home。 Many decisions have to be made。 For example。

they had to decide who should they talk to， what should they tell them in。

terms of how they should do， think or feel about milk。 What specifically did we want to achieve？

Was it about increasing consumption？ Was it about getting more people？

How are you going to say that in terms of your message？ What media are you going to use？ TV。

digital， billboards？ How much money are you going to spend？

And then how do you measure whether it's going to be effective or not？

So for each of these questions， these were the planned answers they had in their mind。

And this is on which the communications campaign was based。 So their target audience。

they said it's not about getting new people to drink milk。

There are enough people who drink milk already， but we want them to drink more。

So the target segment here was people who currently drink milk。

Make sure you have enough milk at home。 That was the message content。 Why？

Because they believed that if they just had more milk at home， they would consume more。

The mission of the campaign was increasing milk consumption by one glass per week within， a year。

And they came up with a campaign which we'll talk more about。 Media strategy was TV and print。

They had to decide on a budget。 And they had already put in place measurement and their mission which is we wanted to have。

a certain level of recall in three months。 They came up with a campaign。

Many of you may have seen these ads。 They are also available on YouTube。 You can go and see them。

There is a lot of continuity in this campaign。 It's the same message repeated in many different ways in many different contexts。

Sometimes they use celebrities。 We will talk about that in this module。

And sometimes they just use regular people。 Again， we'll talk about that。

But here is something important to keep in mind。 In any communication campaign。

you have to make these seven decisions。 What are these seven decisions？

And this is what we call as seven M's of a communications campaign。

I hope from your previous module to remember what are the four P's and what are the five， C's。

Now we have the seven M's of designing a communication campaign。

M number one is who you're going to talk to。 M number two is what should we tell them？

M number three， what do we want to achieve in terms of awareness， knowledge， interest， trial？

How should we say it？ That's how the creative strategy comes in。 The next part is media strategy。

How do we reach them？ And then how much am I going to spend？ And then was it worth it？

So for the purpose of this session， we are not going to spend too much time on media strategy。

and money。 We are going to spend more time on the other M's because I think those are the first few。

that you need to get a good handle on。 Also when you open a typical textbook and marketing and you go to the chapter on designing。

a communications campaign， what you will find is that it has only five M's in it。

That doesn't mean that the book is not good enough。

I think the book is trying to send you a signal that the first two M's， who's your target。

segment and what is your key message or your value proposition is a decision that you should。

make well before you get to designing a communication campaign。

Reflect back on what Professor Kahn said in our session about positioning。

What are the three key components of a positioning statement？

Who's your target segment and what are your points of difference？

That's exactly where markets and message content comes from。

This should have been decided well before you get to designing a communications campaign。

So let's start with the first key M which is solely within the purview of a communications。

campaign and that is mission。 [BLANK_AUDIO]。

沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P18：17_关键趋势.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c

Before we go into details of each of these M's that are relevant to designing a communications。

campaign， I think it will be worthwhile to look at a few key trends especially on the， media side。

I think most of us know that despite the changes in the industry in terms of various。

media available to us， TV viewing is still covering a largest part of the audience followed。

by radio， then internet usage。

But in terms of frequency， if you look at the data， there are a lot of changes。

Overall spent in terms of time people spend on various media that is changing。

Television is going down， some of the digital media is increasing。

I think that's very consistent with our intuition。 But it's not like TV is falling apart。

TV is still and it's projected to be at least one-third of total ad spending will be on， television。

Much of it will shift to digital。 Newspapers have gone down quite a bit。

Radio is still stable but not as big。 Out of home is what we call as billboards and so on。

That remains pretty strong。 It's not going to go away。 If you look at the overall trends。

what you will see is digital going up。 Now this is often very misleading。

The reason it's very misleading is digital， if you really look at it， digital is also。

looking more and more like TV。 Much of digital advertising and content on digital is really videos。

So it's only the method of distribution has changed。 The content looks exactly like TV。

So instead of you watching your regular TV channel， you're going to watch YouTube。

But even if you look at our own websites of companies， our own website at the Wharton， School。

most of our messaging is video based。 So really I think it's important to understand that even though digital is going up。

the， content which is video content is actually probably increasing as a percentage of total。

Only part of it gets delivered through the television。

The rest of it is getting delivered through digital means。

So I think people often say the media is changing， therefore your strategy should change。

I think what we want to emphasize here is the key principles of campaign design are not。

affected by media choice or media availability。 It's actually the other way around。

Media choice is determined by campaign design rather than media affecting campaign design。

So first we have to design the campaign properly， then select the media rather than the other。

way around。 So with that in mind， let's start with the first key M of a communications campaign which is。

figuring out the mission。 What we know from buyer behavior and consumer psychology is that a consumer does not go。

from being a non buyer to a buyer in a zero one manner。

That is suddenly they don't like something and they go ahead and buy。

They go through certain stages。 They go through stages such as becoming aware of the product or a service then generating。

some interest about the product or service next having some desire to either buy or consume。

it and finally deciding to buy it。 What do we know from research on how we influence buyer behavior in our favor？

What we know is that if you look at through these stages carefully things such as mass。

media which could be either digital or others， they are very good at creating awareness but。

not as effective at the latter stages of the persuasion process。

Correspondingly things like word and mouth and interpersonal word of mouth or personal。

sources and personal selling， these are much less effective at the early stages of the decision。

making process but become much more effective at the later stages of the decision making， process。

What does that say about improving our communications campaign？

What it says is very simply that if you had $100 to spend， you would not spend all $100。

on mass media。 You would spend a good part on that to improve awareness and interest but then you would。

also spend a good portion on personal and interpersonal sources to create more word of， mouth。

This is often referred to as the one to punch theory of persuasion。

Where does the phrase one to punch come from？ It comes from boxing。

What does that really mean in this context？ What it means is you use mass media to soften your consumer。

make them familiar with your， products and services。

get them interested and then use either personal selling or interpersonal。

word of mouth to actually convert them to your users。

If you try to use personal selling at the very beginning， it's not going to be very effective。

Same way if you are going to use mass media or digital at the later stages of the decision。

making process， it's not going to be very effective。

So one of the key lessons in determining and designing a communications campaign is to make。

sure you have a good mix of these sources。 Both mass media as well as personal and interpersonal communications。

Now let's focus a little bit on message design。 This is a key component of a communication strategy is how do you say what you need to。

say and psychologists and advertisers have learned over the years that there are two types。

of appeals we focus on。 One is what we call as rational appeals。

They appeal to one side of your brain。 Others is what we call as emotional appeals and for each one of them there are many different。

types and we will discuss a few more few of each in this module。

Let's think of first rational appeals。 A very popular and powerful rational appeal is what we call as product demonstration。

What do we mean by product demonstration？

There are many products and services where we want to let the consumer or our buyers know。

that they deliver a particular point of difference or deliver a particular value proposition。

But that claim is not very easy to believe。 People may not believe why this particular shaving system does give you a better shave。

than another one。 One way to communicate that is to show the technology behind your product。

If you look at this particular ad you see there are four pictures in that one picture shows。

a person actually using the the shaver then there are three other pictures。

The one picture right under the main picture is what is demonstrating the technology。

It's showing how this particular shaving method will actually give you a better shave。

This is what we mean by product demonstration。 It's not demonstrating the product on your face but it's demonstrating how this technology。

will deliver what it claims to deliver。

Let's look at another popular example that you may have seen。

If you see vacuum cleaner ads or washing machine ads they'll often focus on the technology。

in the vacuum cleaner or the washing machine。 Dyson is a popular company that makes vacuum cleaners。

If you look at any of their ads which you can see on YouTube you will see they often talk。

about the technology。 Why will this vacuum cleaner work better than other vacuum cleaners？

And this is what we call as the use of product demonstration in your communications campaign。

It's a very strong rational appeal。

Another type of rational appeal is use of a spokesperson。

Spokespersons if they use a product you believe they do well with the product you may also。

feel that you will also be like them。 Again the use of a spokesperson at times is very expensive so you have to select your spokesperson。

very carefully otherwise it can be not a good value proposition。

Some companies often use another type of a spokesperson which is a cartoon character。

or an inanimate object and they use this cartoon character or other cartoon characters like。

that as a spokesperson。 Different than a spokesperson is the use of a testimonial。

This comes from a regular user who then says look I use the product I feel good about it。

you should also do the same。 Testimonials many people believe are more effective because they are coming from regular。

users and these regular users are not being paid to say something good about the product。

they are doing it because they themselves find the product of the service useful。

Another strong rational appeal that advertises use is product comparison。

They might compare their product against another product on a number of characteristics or holistically。

say more people prefer our product to somebody else。

Whenever you use product comparisons it is very important that you follow the legal guidelines。

for product comparison。 Most countries have very strong guidelines put in place。

Some countries actually do not allow direct product comparisons but those that do have。

strong legal requirements and you must follow those if you use product comparisons。

If done well this is a very strong rational appeal。

Emotional appeals are another popular way of communicating your message and there are。

different types of emotional appeals that we use。 Broadly classified as positive emotions or negative emotions。

Positive emotions there are many examples of positive emotions that that advertises use。

as they develop a campaign。 A good example of that is the Procter & Gamble campaign for Olympics。

You see children growing up， their mother is taking care of them and as the children grow。

up you see them in playing or participating in one of the Olympic games doing very well。

and then you see the child actually hugging the mother and anytime you see this ad no matter。

how many times you see it at least whenever I see it I still have a tear in my eye。

What is interesting about this campaign is when it was developed Procter & Gamble managers。

were not very excited about it。 Why because it did not sell the product itself it only sold the company's name。

So this is also an example of what we call as corporate image advertising。

There are good studies done including something we did many years ago along with one of my。

doctoral students on what type of company should use corporate advertising and what type of。

company should not。 The general theme there was companies that use a common brand name across many of their。

products should use corporate advertising and those that use different brand names or a。

house of brand so to say versus a branded house as Professor Bhabra Khan mentioned in her。

module wherever you have a branded house there is a stronger case for using corporate。

advertising and Procter & Gamble it turns out does not use a branded house it uses a。

house of brands。 Another strong emotion that we use in developing a communications campaign is fear that is。

one of the negative emotions we use。 What is interesting about fear is we have found that too little fear does not have much effect。

too much fear also in a campaign does not have much effect。

So the efficiency of fear goes down if there is too much of it。

So a question can be asked is why too much fear is not good in a campaign。

What advertisers have found is that if you use too much fear in your advertising people。

get turned off in fact they do not even remember seeing that。

So it is very important that if you use fear in a mass media kind of a setting you have。

moderate levels of fear in your campaign that is what researchers say in their work。

One way to moderate the effect of fear is to combine it with humor and there are many examples。

of that when you look at many of the pharmaceutical company ads here is one example where you have。

germs but we never show germs as real germs we will show them as nice looking cartoon， characters。

So at least there is fear but it is moderated by using humor。

Next M we talk very briefly about is media planning。 [BLANK_AUDIO]。