Question

ABC Company began its operations on March 31, 2019. Projected manufacturing overhead costs for the first three months of business are $156,800, $197,200, and $217,600, respectively, for April, May, and June. Depreciation, insurance, and property taxes for the production facility total $28,800 per month and are included in those estimated monthly manufacturing overhead costs as follows: (1) depreciation included is $15,000 per month; (2) insurance expense of $6,000 is included in each month but was paid for the full year on March 31st startup; and (3) $7,800 of estimated property tax expense is included in each month, but no property taxes will actually be paid until November. For the remainder of manufacturing overhead costs, 75% is expected to be paid in the month when the costs are incurred, with the balance to be paid in the following month. The projected cash disbursements for manufacturing overhead in the month of May are: _______.

Answer 1

$158,300

Step-by-step explanation:

Now here, we will only consider the items that are cash in nature which means depreciation and the items that are not paid in the month must be excluded. So we will exclude the impact of unpaid items cost include Insurance expense that was paid in the start of the year, property tax that will not be paid till November. In the nutshell, the $28,800 cost that is included in the projected manufacturing overhead costs must be eliminated.

The projected ash disbursements for manufacturing overhead for each month would be:

For the month of April

Cash Disbursement for Manufacturing Overhead = $156,800 - 28,800

= $128000

Now, 75% of the above amount calculated will be paid in the current month and 25% in the next month, which means:

Cash Disbursement for Manufacturing Overhead = $128000 - 25% of current month

Cash Disbursement for Manufacturing Overhead = $128,000 - $32,000

= $96,000 will be actual cash outflow for April

For the month of May

Cash Disbursement for Manufacturing Overhead = $197,200 - 28,800

= $168,400

Now, 75% of the above amount calculated will be paid in the current month, 25% will be paid in the next month and the 25% of the previous month will be paid in this month as well, which means:

Cash Disbursement for Manufacturing Overhead = $168,400 - 25% of current month + 25% of previous month

Cash Disbursement for Manufacturing Overhead = $168,400 - $42,100 + $32,000

= $158,300 will be actual cash outflow for May

The correct Answer is $158,300.

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