In a merchandising organization, the merchandise purchases budget replaces what budget from a manufacturing firm?
A)the administrative expense budget
B)the pro-forma income statement
C)the production budget
D)the cost of goods sold budget

Question

Quizplus · Accepted Answer

A merchandising organization does not have production or manufacturing activities, so the production budget is not applicable. The administrative expense budget and the pro-forma income statement are still relevant, but the merchandise purchases budget replaces the cost of goods sold budget from a manufacturing firm. This is because the cost of goods sold for a merchandiser consists solely of the cost of the products purchased for resale, whereas a manufacturer would need to budget for the direct materials, direct labor, and overhead costs involved in producing their goods.

In a Merchandising Organization, the Merchandise Purchases Budget Replaces What