A key difference between a master budget prepared for a merchandiser versus a manufacturer is:

• A. A merchandiser prepares a direct materials budget, while a manufacturer does not.
• B. A merchandiser includes a purchases budget instead of a production budget.
• C. A manufacturer does not prepare a cash budget, but a merchandiser does.
• D. A merchandiser includes a raw materials inventory budget, while a manufacturer does not.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a master budget: A master budget is a comprehensive financial planning document that includes various individual budgets, such as sales, production, and cash budgets, to provide a complete overview of an organization's financial activities.
2. Identify the key difference between a merchandiser and a manufacturer: A merchandiser purchases finished goods for resale, while a manufacturer produces goods using raw materials and labor.
3. Recognize the specific budgets involved: A merchandiser typically prepares a purchases budget to plan for the acquisition of inventory, whereas a manufacturer prepares a production budget to plan for the production of goods.
4. Note that a manufacturer also prepares a direct materials budget to account for the raw materials needed for production, while a merchandiser does not need this budget since it does not produce goods.
5. Understand that both merchandisers and manufacturers prepare cash budgets to manage cash inflows and outflows, but the structure and components of their budgets differ based on their operational needs.