Question

Tantom Industries is investigating a lockbox system to reduce its collection time. It has determined the...

Tantom Industries is investigating a lockbox system to reduce its collection time. It has determined the following:

Average number of payments per day

435

Average value of payment

$920

Variable lockbox fee

$0.15

Annual lockbox fee

$2000

Daily interest rate

0.068%

The total collections time will be reduced by 3 days if the lockbox system is implemented.

a. (5 pts) What is the annual benefit of this lockbox system?

b. (5 pts) What is the annual cost of this lockbox system?

c. (5 pts) Should the Tantom Industries implement this proposed lockbox system? Why or why not?

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Homework Answers

Answer #1
Answer - A
Annual Transcation value          146,073,000 Average value of payment X no annual payments
Interest per day                     99,330
Interest for 3 day                  297,989
Answer - B
Annual Transcation                  158,775 Avg. payments X variable fee
Variable lockbox fee                     23,816
Annual cost                     25,816 Variable + annual fee

Answer - C

The cost is only 8.66% of the total interest saved. therefore the company should go with the lockbox payment system

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