Nagel Corporation's budgeted monthly sales are $5,000,and they are constant from month to month.Its customers pay as follows: 40% 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 payments for wages,rent,and taxes,are 25% of sales for the month.Construct a cash budget for a typical month.What is the average cash gain or loss during the month?

Question

Quizplus · Accepted Answer

Cash receipts:
- 40% of $5,000 = $2,000 received in the first month with a 2% discount = $1,960
- 60% of $5,000 = $3,000 received in the second month = $3,000
Total cash receipts = $4,960

Cash disbursements:
- Purchases for next month's sales = 50% of $5,000 = $2,500
- Other payments = 25% of $5,000 = $1,250
Total cash disbursements = $3,750

Net cash gain or loss:
Cash receipts ($4,960) - Cash disbursements ($3,750) = $1,210 cash gain

Therefore, the best choice is C.

Nagel Corporation's Budgeted Monthly Sales Are $5,000,and They Are Constant