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The table below shows a partial 2016 sales budget for one of the products, ACER, manufactured by EHS Ltd. EHS wishes to maintain a finished
The table below shows a partial 2016 sales budget for one of the products, ACER, manufactured by EHS Ltd. EHS wishes to maintain a finished good inventory equal to 500 plus 10% of next month's sales in order to prevent a stock out situation. On 31 Dec 2015, there were 680 units of finished goods inventory. Each finished product requires 4 units of a rare special raw material, XA-3. EHS has a policy of maintaining an inventory of XA-3 equal to one half of next month's production requirement. The XA-3 inventory balance as at 31 Dec 2015 met this requirement. ACER retails at $520 each. Based on past experience, 50% of the net sales billed in a month are collected during the month, 25% are collected in the following month and 9% are collected in the second month following. Customers get a 3% discount if payment is received within 5 days after the billing date. Generally, 10% of customers who pay in the month of sale take advantage of this discount policy. The rest of the receivables are expected to be uncollectable. Required: (a) Prepare a budget showing the quantities of XA-3 to be purchased for March 2016. (b) Prepare a cash receipts budget for April and May 2016. (c) Should there be a shortfall in the actual cash receipts in April and May 2016, who should be held responsible? Explain why
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