The Zindler Company currently has a centralized billing system. Payments are made by all customers to the central billing location. It requires, on the average, 4 days for customers' mailed payments to reach the central location. An additional 14days are required to process payments before a deposit can be made. The firm has a daily average collection of $500,000. The company has recently investigated the possibility of initiating a lockbox system. It has estimated that with such a system, customers' mailed payments would reach the receipt location % days sooner. Further, the processing time could be reduced by 1 additional day, because each lockbox bank would pick up mailed deposits twice daily.

a. Determine the reduction in cash balances that can be achieved through the use of a lockbox system.

b. Determine the opportunity cost of the present system, assuming a 5 percent return on short-term instruments.

c. If the annual cost of the lockbox system were $75,000, should such a system be initiated?

Answer rating: 100% (QA)

a Determine the reduction in cash balance that can be achieved through the us... View the full answer