Question

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

April May June
Manufacturing costs $155,000 $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 ________.

Answer 1

The cash payments expected for Finch Company in May consist of the remaining one-fourth of April's manufacturing costs and three-fourths of May's manufacturing costs, totaling $186,200.

Step-by-step explanation:

To calculate the cash payments expected for Finch Company in May, we need to consider the payment conditions provided:

• Manufacturing costs: Three-fourths are paid in the month they are incurred, and one-fourth in the following month.
• Insurance expense: Paid four times a year in the first month of each quarter which includes April for the current scenario.
• Property tax expense: Paid once a year in November, therefore not relevant for May's cash outflows.

The manufacturing costs for April are $155,000. Since Finch pays three-fourths in the month incurred, that amount has already been paid in April and doesn't affect May's payments. However, one-fourth of April's manufacturing costs, which is $38,750 ($155,000 / 4), will be paid in May. Additionally, all of May's manufacturing costs at a three-fourths payment rate, equals $147,450 ($196,600 * 3/4).

The insurance expense of $920 for May was paid in April as it is the beginning of the quarter.

Thus, adding the one-fourth of unpaid April manufacturing costs to three-fourths of May's manufacturing costs gives us the total cash payments for Finch Company in May, which is $186,200 ($38,750 + $147,450).

Answer 2

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

Step-by-step 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.