Problemit takes cookie cutter modular homes inc about six, Ask an Expert

Accounting

Problem:

It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter's management is considering a lockbox system to reduce the firm's collection times. It is expected that the lockbox system will reduce receipt and deposit times to three days total. Average daily collections are $123,000, and the required rate of return is 4 percent per year. Assume 365 days per year.

Required:

Question 1: What is the reduction in outstanding cash balances as a result of implementing the lockbox system?

Question 2: What is the daily dollar return that could be earned on these savings?

Question 3: What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month?

Question 4: What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the beginning of the month

Note: Please show guided help with steps and answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91173430

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