Explore BrainMass

Explore BrainMass

    Lock Box

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes, with an average payment size of $1,500. The bank's charge for operating the lock boxes is either $.40 a check or compensating balances of $800,000.
    a. If the interest rate is 9 percent, which method of payment is cheaper?
    b. What reduction in the time to collect and process each check is needed to justify use
    of the lock-box system?

    Book for guidance : Operations Management for Competitive Advantage by Chase, Jacobs, & Aquilano

    © BrainMass Inc. brainmass.com June 3, 2020, 9:01 pm ad1c9bdddf

    Solution Preview

    a. We need to compare the cost of the two systems.

    The total yearly cost of the lock box system is 300 X 365 X 0.4 = $43,800. (Total checks per day are 300 X 365 days in year X 0.40 the charge per check)
    If the bank does not charge for the check but ...

    Solution Summary

    The solution explains how to evaluate a lock box system.