New Jersey Mortuary Science Practice Exam

When applying interest income from cash disbursements, which costs are covered first?

1. The original cost of the prepaid funeral agreement

2. Increased costs of cash disbursements

3. Costs of merchandise sold

4. Administrative charges

The correct answer is: Increased costs of cash disbursements

The correct choice highlights that interest income from cash disbursements primarily covers the increased costs associated with those disbursements first. This is important within the context of financial management in funeral service, as it prioritizes the direct expenses that have risen since the initial agreement was made. In a prepaid funeral agreement, cash is often invested or held in trust, generating interest. As expenses increase over time due to inflation or other market factors, the income generated from invested cash is utilized to offset these specific increased costs before addressing other areas. Understanding the order of coverage is crucial for financial sustainability in the funeral service industry, ensuring that the funds are allocated efficiently and that the organization remains responsive to rising expenses that impact the delivery of funeral services. Prioritizing increased costs ensures that the primary financial obligations tied to the arrangement are met before considering other potential expenses, ultimately protecting both the financial integrity of the funeral home and the interests of those who have prearranged services.