A company currently uses an overdraft at 10% per annum.
A new credit controller is brought in,at a cost of £5,000 salary more than the previous person doing the job.After one year she claims to have saved the company money because she has reduced receivables from £50,000 to £20,000.
How much has she saved the company?
A) She has saved the company £25,000
B) She has saved the company £30,000
C) She has cost the company £2,000
D) She has cost the company £35,000

Question

Quizplus · Accepted Answer

Although she has reduced debtors, the money will still come in.Last year the cost of the debtors was the interest on the overdraft. At 10% this would be £5,000. The new interest charge is £2,000. So there is a saving on the interest of £3,000.However, the increase in salary is £5,000. And so overall, there is a cost of £2,000 to the company.

A Company Currently Uses an Overdraft at 10% Per Annum