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Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:
April May June
Manufacturing costs $155,000 $196,600 $211,400
Insurance expense 920 920 920
Depreciation expense 1,870 1,870 1,870
Property tax expense 550 550 550
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 $920 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.
Required:
a. The cash payments expected for Finch Company in the month of May are ________.

Respuesta :

Answer:

The cash payments expected for month of May are $207,700.

Explanation:

To calculate manufacturing cost for the month of may,

April manufacturing cost to be paid in May (one forth of April's cost) = $196,600 * 1/4 = $49,150.

May manufacturing cost to be paid in May (Three forth of May's cost) = $211,400 * 3/4 = $158,550

Total Manufacturing cost to be paid in month of May = $207,700 ($49,150 + $158,550).

Insurance expense is paid quarterly, there will be no expense in the month of May since the 2nd quarter expense is already paid in April.

Property tax is paid annually in the month of November so there will no expected cash outflow in the month of May.

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