International Shoppes receives an average of 418 checks a day with an average amount per check of $607. A lockbox system is expected to reduce the average collection time by 2.3 days. The daily interest rate on Treasury bills is .011 percent. What is the maximum cost per check that can be charged for the company to break-even on the lockbox system?

Question

Quizplus · Accepted Answer

The maximum cost per check that can be charged for the company to break-even on the lockbox system is $.154. This is because the lockbox system will reduce the average collection time by 2.3 days, which will save the company $607 * .011% * 2.3 = $1.54 per check in interest.

International Shoppes Receives an Average of 418 Checks a Day