Question

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

	April	May	June
Manufacturing costs*	$155,900	$198,700	$206,800
Insurance expense**	990	990	990
Depreciation expense	2,110	2,110	2,110
Property tax expense***	600	600	600

*Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
**Insurance expense is $990 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
***Property tax is paid once a year in November.

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

a.$149,025

b.$38,975

c.$226,975

d.$188,000

I dont get it

Answer 1

Ans:D.$188,000 is Correct Answer

cash payments expected for the month of May = D.$188,000

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 =198,700*3/4	149025
Cash payments for the may 38975+143175=182150	188,000

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