17RQ - Horngren'S Financial And Managerial Accounting

Question

How does the master budget for a merchandising company differ from a manufacturing company?

Step-by-Step Solution

Answer

There is little difference between the master budget of merchandising and manufacturing companies because merchandising companies only resell the products, and manufacturing companies do the manufacturing process also and then sell.

Step 1: Meaning of Merchandising Company

A Merchandising company is a company that does not manufacture goods but purchases the goods from the manufacturers or wholesalers and resells them to customers.

Step 2: Difference between the master budget for a merchandising company and a manufacturing company

The operating budget for a merchandising company includes the sales budget, inventory purchase and cost of goods sold budget, and selling and administrative expense budget. 

 

Whereas the operating budget of the manufacturing company includes the sales budget, production, direct material, and direct labor budget, manufacturing overhead budget, cost of goods sold budget, and selling and administrative expense budget.