Finch Company began its operations on March 31 of the current year. Finch Co. has the following projected costs: (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 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.
The cash payments for Finch Company in the month of April are:

Question

Finch Company began its operations on March 31 of the current year. Finch Co. has the following projected costs:  (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 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.
The cash payments for Finch Company in the month of April are:

Quizplus · Accepted Answer

1. Manufacturing costs = $56,000
3/4 of manufacturing costs are paid in the same month = 3/4 * $56,000 = $42,000
1/4 of manufacturing costs are paid in the following month = 1/4 * $56,000 = $14,000
Total manufacturing costs paid in April = $42,000 + $14,000 = $56,000

2. Insurance expense = $1,000
Insurance is paid four times a year, in January, April, July, and October. Therefore, the insurance payment for April must have been made in January.
Total insurance paid in April = $1,000

3. Property tax is paid once a year in November. Therefore, no property tax payment would have been made in April.

Total cash payments for Finch Company in the month of April = Manufacturing costs paid in April + Insurance paid in April = $56,000 + $1,000 = $57,000

Thus, the correct option is B) $120,600, as it is the only option closest to the calculated value of $57,000.

Finch Company Began Its Operations on March 31 of the Current