The Lawrence Stone-Age Pottery Co. receives 50 cheques per month from customers. Average payments and clearing times are as follows: five cheques for $21,000, two days; 15 cheques for $58,000, three days; 25 cheques for $37,000, four days; and five cheques for $10,000, five days. Assume a 360-day year.

What is the weighted average float in receiving the funds?

Question

What is the weighted average float in receiving the funds?

Quizplus · Accepted Answer

To calculate the weighted average float, we multiply the number of cheques by the amount and the days it takes for each to clear, sum these products, and then divide by the total amount received from all cheques. The calculation is as follows:- For the five cheques of $21,000 clearing in two days: $5 \times 21,000 \times 2 = 210,000$- For the 15 cheques of $58,000 clearing in three days: $15 \times 58,000 \times 3 = 2,610,000$- For the 25 cheques of $37,000 clearing in four days: $25 \times 37,000 \times 4 = 3,700,000$- For the five cheques of $10,000 clearing in five days: $5 \times 10,000 \times 5 = 250,000$Total weighted days = $210,000 + 2,610,000 + 3,700,000 + 250,000 = 6,770,000$Total amount received = $5 \times 21,000 + 15 \times 58,000 + 25 \times 37,000 + 5 \times 10,000 = 105,000 + 870,000 + 925,000 + 50,000 = 1,950,000$Weighted average float = $6,770,000 / 1,950,000 = 3.47$ days.