As part of a union negotiation agreement, the United Clerical Workers Union conceded to be paidevery two weeks instead of every week. A major firm employing hundreds of clerical workers hada weekly payroll of $1,000,000 and the cost of short-term funds was 12 percent. The effect of this concession was to delay clearing time by one week. Due to the concession, the firm
A) realized an annual loss of $120,000.
B) decreased its cash turnover.
C) realized an annual savings of $120,000.
D) increased its cash cycle.

Question

Quizplus · Accepted Answer

By paying every two weeks instead of every week, the firm is holding onto its cash for an extra week, leading to a reduction in the cost of short-term funds by 12% for that week. This results in an annual savings of $120,000 for the firm. Therefore, the correct choice is C.

As Part of a Union Negotiation Agreement, the United Clerical