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Kindly assist with the below question.
Question) A company’s budgeted production overhead costs during January to March are as follows:
Budgeted production overhead costs January February March
$85,000 $64,000 $72,000Within these figures $40,000 per month is for fixed production overhead cost, which includes $30,000 for depreciation of production machinery. The remaining cost is variable overhead which is paid in the following month. The fixed overhead is paid in the month following that in which it is incurred.
Calculate the amount to be included in the cash budget for February in respect of payments for fixed production overhead.I am puzzled as to where you problem is with this question!
Depreciation is not a cash flow – only the remainder of the budgeted production cost will result in a cash flow for the cash budget.
Since the fixed costs are paid in the following month, it means that the cash payment in February will be the budgeted fixed cost of January (after subtracting the depreciation).
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