Hatim Limited manufactures one product, an office chair. 

Sales of the chair for the period April-July 2015 are expected to be as follows.

Hatim Limited plans to hold 1500 metres of wood in inventory in April and to increase this to 2000 metres in May and then maintain it at this level.

Each chair uses 12 metres of wood at a current cost of $1.80 per metre. It is expected that the price of wood will increase to $2 on 1 June 2015. Hatim Limited plans to hold 1500 metres of wood in inventory at 1 April 2015 and to increase this holding to 2000 metres at the end of May 2015. 

The selling price of each chair at 1 April 2015 is expected to be $80. The directors plan to increase the selling price to $95 on 1 May 2015. All sales are on credit and 80 per cent of customers pay in the month following sale and receive 5 per cent settlement discount. All remaining customers pay in full in the second month after sale. Hatim Limited purchases 90 per cent of materials on credit and pays suppliers one month after purchase to receive a 5 per cent settlement discount. The remaining 10 per cent of materials are paid in cash in the month of purchase. 

Required

a. Prepare a production budget for each of the four months April-July 2015. 

b. Prepare a raw materials purchases budget for each of the four months April-July 2015. 

c. Prepare a trade receivables budget for each of the two months June and July 2015. 

d. Prepare a trade payables budget for each of the two months June and July 2015.

Hatim Limited currently operates a system of absorption costing. The directors are considering changing to a system of activity-based costing (ABC). 

e. Discuss the advantages to the company of operating a system of ABC.

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Units April 400 May 600 June 700 July 1 000