Question

An accounts receivable manager processes 300 checks per day with an average processing time of 10 working days. a. What is the average number of accounts receivable checks being processed in her office? b. What if, through information technology, the manager reduces the processing time from 10 days to 7 days? c. What are the advantages and disadvantages of adopting this technology? Explain.

Answer 1

a. Average number of accounts receivable checks WIP (Work-in-process) = R(Through put) T(flow time)

WIP = 300 checks per day 10 days = 3,000 Checks

b. After reduction of processing time

WIP = 300 checks per day 7 days = 2,100 Checks

c. The new information technology dramatically speeds up the process and simultaneously lowers the average number of checks (WIP) in the office. Processing more checks faster means more cash sooner in their accounts.