Chadmark Corporation's budgeted monthly sales are $3,000. Forty percent of its customers pay in the first month and take the 2 percent discount. The remaining 60 percent pay in the month following the sale and don't receive a discount. Chadmark's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at $1,500. Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for Chadmark Corporation?

Question

Quizplus · Accepted Answer

Sales:
40% of $3,000 = $1,200 (collected in the first month with a 2% discount)
60% of $3,000 = $1,800 (collected in the second month with no discount)

Purchases: $1,500

Other payments: $700

Cash receipts:
$1,200 (from first month sales)
$1,800 × 0.98 (from second month sales, adjusted for 2% discount) = $1,764

Total cash inflows: $2,964

Cash outflows: $1,500 + $700 = $2,200

Net cash inflow: $764

Ending cash balance: $1,547

Average cash gain or (loss) during a typical month = Net cash inflow - Other payments = $764 - $700 = $64

Therefore, the best choice is C, $776.

Chadmark Corporation's Budgeted Monthly Sales Are $3,000