Question

Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:

	April	May	June
Manufacturing costs (1)	$155,900	$190,900	$214,600
Insurance expense (2)	1,060	1,060	1,060
Depreciation expense	1,910	1,910	1,910
Property tax expense (3)	460	460	460

(1) Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
(2) Insurance expense is $1,060 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
(3) Property tax is paid once a year in November.

The cash payments expected for Finch Company in the month of May are

a.$182,150

b.$221,125

c.$143,175

d.$38,975

Answer 1

Answer:

cash payments expected for the month of May = a.$182,150

Working notes for the above answer:

The cash payments for the month of May

1/4 manufacturing exp of April paid in May =155900/4	38975
3/4 manufacturing exp of May paid in May =190,900*3/4	143175
Cash payments for the may 38975+143175=182150	182150

Note:

1

Depreciation is non cash exp is not considered

2

Insurance expense is $1,060 a month; however, the insurance is paid four times yearly in the month of January, April, July, and October so in the may month it will not be considered

3

Property tax is paid once a year in November so it will appear in the November month cash payment