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Cherokee Incorporated is a merchandiser that provided the following information: Beginning Inventory = \$10,000; Purchases = \$50,000; Ending Inventory = \$8,000. What is the Cost of Goods Sold (COGS) for the period?
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Merchandising Company vs. Manufacturing Company
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All of the following budgets are prepared by merchandising companies except:
A
Direct Materials Budget
B
Cash Budget
C
Sales Budget
D
Selling and Administrative Expense Budget
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Understand the nature of merchandising companies: Merchandising companies purchase finished goods for resale rather than manufacturing products. Therefore, they do not require budgets related to production or raw materials.
Review the types of budgets typically prepared by merchandising companies: These include the Cash Budget, Sales Budget, and Selling and Administrative Expense Budget, which are essential for planning and managing operations.
Identify the Direct Materials Budget: This budget is specific to manufacturing companies as it involves planning for the purchase and usage of raw materials required for production. Merchandising companies do not produce goods, so this budget is not applicable to them.
Compare the given options: Analyze each budget listed in the problem and determine whether it aligns with the operations of a merchandising company. The Direct Materials Budget stands out as unrelated to merchandising activities.
Conclude that the Direct Materials Budget is the correct answer: Since merchandising companies do not deal with raw materials or production, they do not prepare a Direct Materials Budget, making it the exception among the listed budgets.
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