A. How much is the average daily collections?B. How much is the increase in the average cash balance due to the three-day reduction in the collection float if the new system is adopted?C. How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system? JJF Wholesale has an average collection delay of 8 days from the time a customer mails a check tothe time the funds become collected funds that it can draw on. Management has concluded that byusing a lockbox system it will be able to reduce collection time to 5 days. The cost of this lockboxsystem is expected to be $32,000 per year to operate.The following information is known:Annual bank interest3%Average number of daily payments to lockbox 1,000Average size of payments$400The company needs to determine whether the lockbox system is a worthwhile investment. It will needto calculate the benefits that will be received and compare them to the cost of the new system.

Lock box is a system where that can be utilized to reduce the time between customer sending a check…

Answered: he gross

Business

Accounting

he gross

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A. How much is the average daily collections?

B. How much is the increase in the average cash balance due to the three-day reduction in the collection float if the new system is adopted?

C. How much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system?

JJF Wholesale has an average collection delay of 8 days from the time a customer mails a check to
the time the funds become collected funds that it can draw on. Management has concluded that by
using a lockbox system it will be able to reduce collection time to 5 days. The cost of this lockbox
system is expected to be $32,000 per year to operate.
The following information is known:
Annual bank interest
3%
Average number of daily payments to lockbox 1,000
Average size of payments
$400
The company needs to determine whether the lockbox system is a worthwhile investment. It will need
to calculate the benefits that will be received and compare them to the cost of the new system.

Formula Formula ROI (%) = Net Income Principal Amount × 100

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