Finch Company began its operations on March 31 of the current year. Finch has th

Question

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

(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

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

Explanation / Answer

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

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

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