At March 31 Phoenix Trading, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totalling $85,000.

Sales, in units, have been budgeted as follows for the next four months:

April ...............60,000

May .................75,000

June ................90,000

July .................81,000

The Board of Directors of Phoenix Trading has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.

The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the balance is collected in the following month.

Required:

A. Prepare merchandise purchases budget showing how many units should be purchased

for each of the months April, May, and June.

(11 marks)

B. Prepare schedule of expected cash collections for each of the months April, May, and

June.

(7 marks)

C. What is Budgetary Slack? Discuss the pros and cons of building slack into a budget from the perspective of:

An employee and,

A senior manager.

(4 marks)