Finch Company began its operations on March 31 of the current year. Finch Co. ha

Question

Finch Company began its operations on March 31 of the current year. Finch Co. has the following projected costs:
April May June Manufacturing costs(1) $156,800 $195,200 $217,600 Insurance expense (2) $1,000 $1,000 $1,000 Depreciation expense $2,000 $2,000 $2,000 Property Tax expense(3) $500 $500 $500 (1) 3/4 of the manufacturing costs are paid for in the month they are incurred. 1/4 is paid in the following month.
(2) Insurance expense is $1,000 a month however the insurance is paid four times year 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 for Finch Company in the month of May are: a. $185,600 b. $189,100 c. $149,900 d. $187,600 Finch Company began its operations on March 31 of the current year. Finch Co. has the following projected costs:
April May June Manufacturing costs(1) $156,800 $195,200 $217,600 Insurance expense (2) $1,000 $1,000 $1,000 Depreciation expense $2,000 $2,000 $2,000 Property Tax expense(3) $500 $500 $500 (1) 3/4 of the manufacturing costs are paid for in the month they are incurred. 1/4 is paid in the following month.
(2) Insurance expense is $1,000 a month however the insurance is paid four times year 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 for Finch Company in the month of May are: $185,600 $189,100 $149,900 $187,600 April May June Manufacturing costs(1) $156,800 $195,200 $217,600 Insurance expense (2) $1,000 $1,000 $1,000 Depreciation expense $2,000 $2,000 $2,000 Property Tax expense(3) $500 $500 $500

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Cash Payments = 3/4*195200 (May's Manufacturing Cost) + 156800*1/4 (April's Manufacturing Cost Received in May) = 185600

Option A (185600) is the correct answer.

Notes:

a) Insurance expense is paid in April for the quarter. So, there will be no cash disbursement in the Month of May.

b) Depreciation expense is a non-cash expense.

c) Property taxes are paid in November for the entire Year. So, no cash disbursement will take place in May.

Thanks.

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