Tierney Enterprises is constructing its cash budget.Its budgeted monthly sales are $5,000, and they are constant from month to month.40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount.The firm has no bad debts.Purchases for next month's sales are constant at 50% of projected sales for the next month."Other payments," which include wages, rent, and taxes, are 25% of sales for the current month.Construct a cash budget for a typical month and calculate the average net cash flow during the month.
A) $1,092
B) $1,150
C) $1,210
D) $1,271
E) $1,334

Question

Quizplus · Accepted Answer

Cash budget for a typical month:

Total Sales: $5,000
Collections from sales:
- 40% of sales with 2% discount (collected in the first month): $2,000 x 0.98 = $1,960
- 60% of sales without discount (collected in the second month): $3,000
Total collections: $4,960
Payments:
- Purchases (50% of next month's sales): $2,500
- Other payments (25% of current month's sales): $1,250
Total payments: $3,750

Net cash flow: $4,960 - $3,750 = $1,210

Therefore, the best choice is C, with an average net cash flow during the month of $1,210.

Tierney Enterprises Is Constructing Its Cash Budget