Home / Questions / A The monthly total cost for your companys cash collection system Total Variable costs F...
A) The monthly total cost for your company's cash collection system:-
= Total Variable costs + Fixed costs
= Number of remittances * [(Face value * total float days * opportunity cost) + Bank charges] + Fixed costs
= 2000 * [ 10000 * 10^{(NOTE 1)} * 0.05 / 365 + 0.25 ] + 300
= 2000 * [ 10000 * 10 * 0.0001369863 + 0.25 ] + 300
= 2000 * [13.69863 + 0.25 ] + 300
= 2000 * 13.94863 + 300
= $ 28197.26 (approx)
(NOTE 1):- Total Float Days = 4 + 3 + 3 = 10 Days
B) The monthly total cost for your company's cash collection system if you opt fot lock box service:
= Total Variable costs + Total Fixed costs
= Number of remittances * [(Face value * total float days * opportunity cost) + Bank charges] + Fixed costs
= 2000 * [ 10000 * 4^{(NOTE 2)} * 0.05 / 365 + 0.40 ] + 400
= 2000 * [ 10000 * 4 * 0.0001369863 + 0.40 ] + 400
= 2000 * [5.479452 + 0.40 ] + 400
= 2000 * 5.879452 + 400
= $ 12158.90 (approx)
(NOTE 2):- Total Float Days = [10 - (4 + 1 +1) ] = 4 Days.
C) Yes, I will opt for the Lockbox service as the total cost for optiong lockbox service ($ 12158.90) is less than that the total cost computed in part A ($ 28197.26).
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