Problem 27-6 Using Weighted Average Delay

A mail-order firm processes 5,700 checks per month. Of these, 60 percent are for $55 and 40 percent are for $80. The $55 checks are delayed two days on average; the $80 checks are delayed three days on average. Assume 30 days per month.

a-1.	What is the average daily collection float? (Do not round intermediate calculations.)

Average daily collection float

$

a-2.	How do you interpret your answer?

On average, there is $ that is (Click to select)uncollectedcollected and (Click to select)not availableavailable to the firm.

b-1.	What is the weighted average delay? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Weighted average delay

days

b-2.	Calculate the average daily float. (Do not round intermediate calculations.)

Average daily float

$

c.	How much should the firm be willing to pay to eliminate the float?

Maximum payment

$

d.	If the interest rate is 7 percent per year, calculate the daily cost of the float. (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Daily cost of the float

$

e.	How much should the firm be willing to pay to reduce the weighted average float by 1.5 days? (Do not round intermediate calculations.)

Maximum payment

$