MANAGEMENT ACCOUNTING DECISIONS (CASE: HILLSDALE GAMING) Hillsdale Gaming was founded by Aaron Reinhotz to produce a game marketed under the name "Castles and Unicoms. Each Castles and Unicorns cost the company 535 to produce. In addition to these production costs that varied in direct proportion to volume (so-called variable (50- called variable costs), the company also incurred $10,000 monthly being in business costs (fixed costs) irrespective of the month's volume. The company sold its product for $55 each As of December 31, Halsdale Garning had been producing "Castles and Unicorns for three months using rented facilities. The balance sheet on that date was as follows: HILLSDALE GAMING COMPANY Balance Sheet As of December 31 Assets Cash $146.250 Accounts receivable 68,750 Inventory 35.000 $250.000 Common stock Retained earnings Equities $250,000 0 $250,000 Reinholz was very pleased to be operating at a profit in such a short time. December sales had been 750 units, up from 500 in November, enough to report a profit for the month and to eliminate the deficit accumulated in October and November. Sales were expected to be 1,000 units in January, and Reinholz's projections showed sales increases of 500 units per month after that Thus, by May monthly sales were expected to be 3,000 units. By September that figure would be 5,000 units Reinholz was very conscious of developing good channel relationships in order to increase sales, so their deliveries were always prompt. This required production schedules 30 days in advance of predicted sales. For example, Hillsdale Gaming had produced 1.000 Castles and Unicorns" in December for January sales, and would produce 1,500 in January for February's demand. The company billed its customers with stated terms of 30 days net, but did not strictly enforce these credit terms with the result that customers seemed to be taking an additional month to pay. All of the company's costs were paid in cash in the month in which they were incurred. Reinholz's forecasts came true. By March, sales had reached 2,000 "Castles and Unicorns," and 2,500 units were produced in March for April sale. Total profit for the year by March 31 had reached $60,000. In order to get a respite from the increasingly hectic activities of running the business, in mid-Apeil Reinholz went on a family vacation Within the week, the company's bookkeeper called. The company's bank balance was almost zero, so necessary materials could not be purchased. Unless Reinholz returned immediately to raise more cash, the entire operation would have to shut down within a few days. QUESTION: How is it possible that a company starts with $250,000 in capital and has profitable sales for a period of six months and still ends up with a zero bank balance? Why did Hillsdale Gaming need money in April? How could this need have been avoided