Question

1. Which of the manufacturing budgets would not be used by a merchandiser?

2. What additional budget would a merchandising company need?

3. Suppose you work for a company that currently purchases a component of its product, rather than manufactures it. You do not have to describe the product or the component. Write a short memo to management describing the additional budgets that will be needed if the component is to be produced in-house rather than purchased.

Answer 1

A merchandising company will not have a production or direct material budget and may not have a direct labour or overhead budget.

Merchandising company needs merchandise purchases budget.

The merchandise purchases budget is similar to production budget. the purchases budget can be done in units and in total dollar. Typically, it is done in dollar and will use a cost of goods sold percentage to determine the cost of inventory sales. Cost of goods sold is literally the cost of inventory we are swlling and should be less than what we can sell it.