How much time must be saved to justify a lock-box system that processes 350 cheques per day at an average amount of $400 per cheque if the system will cost $20,000 annually and interest rates average 8 percent?

Question

Quizplus · Accepted Answer

To find how many days need to be saved to justify the lock-box system, we need to use the equation:
(days saved) x (number of cheques) x (average amount) = (float reduction)
where,
number of cheques = 350
average amount = $400
float reduction = $250,000 (break-even point)
Substituting the given values, we get:
(days saved) x 350 x 400 = 250,000
(days saved) = 250,000 / (350 x 400)
(days saved) = 1.79
Therefore, the lock-box system must save at least 1.79 days of float to justify the cost of $20,000 annually. Thus, the answer is B.

How Much Time Must Be Saved to Justify a Lock-Box