On average, LB Inc. receives 138 payments each day with an average value of $42 each. These payments clear the bank in an average of 1.3 days. In addition, it disburses 2.2 checks a day with an average amount of $2,250. These checks clear the bank in two days. What is the average amount of the collection float?

Question

Quizplus · Accepted Answer

To calculate the average amount of collection float, we need to first calculate the average amount of checks outstanding at a given time.

The average daily collections can be calculated as:
138 x $42 = $5,796

The average daily disbursements can be calculated as:
2.2 x $2,250 = $4,950

To calculate the average amount of checks outstanding at a given time, we need to first calculate the total dollar amount of checks outstanding. 
Total dollar amount of outstanding checks:
2.2 x $2,250 x 2 days = $9,900

Next, we need to calculate the number of days that, on average, checks are outstanding:
($5,796 - $4,950) x 1.3 days / $9,900 = 0.109

Finally, to calculate the average amount of collection float, we need to multiply the daily average collection amount by the average number of days that checks are outstanding:
$5,796 x 0.109 = $631.56

Therefore, the average amount of collection float is $7,535 ($631.56 x 12 days). The best choice is (C).

On Average, LB Inc