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 $1,200 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 April are

April May June Manufacturing costs (1) $158,500 $195,700 $209,900 Insurance expense (2) 1,200 1,200 1,200 Depreciation expense 2,040 2,040 2,040 Property tax expense (3) 410 410 410

Explanation / Answer

Cash payments in the month of April are:

(1) Manufacturing Costs: 3/4×158500=$118875

(2) Insurance Expenses: 1200×3=$3600

Since Insurance Expenses for the quarter are paid in the month of April

(3) Depreciation being Non cash expense will not be taken into consideration.

(4) Property tax is paid yearly in the month of Nov. Hence ignored for calculating cash payments for the month of April

Total Cash Payments: $118875+$3600=$122475

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