Question

A California firm is planning to use a lockbox system to speed up collections from its customers located on the East Coast. A Philadelphia-area bank will provide this service for an annual fee of $6500 plus 10 cents per transaction. The estimated reduction in collection and processing time is one day. If the average customer payment in this region is $2900, how many customers each day, on average, are needed to make the system profitable for the firm

Answer 1

Answer:

2 customers are needed each day to break even, thus more than 2 customers per day will make this system profitable for the firm

Explanation:

Annual fee   = $6,500

Fees per day( 6,500 / 365) = $17.81

Other fees per transaction = $0.10

Average Customer Payment = $2,900

Average Savings per day = $2,900 / 365 days

= $7.9452

Let number of customers be x

17.81  + 0.10x = 7.9452x

17.81 =  7.9452x - 0.10x

7.8452x = 17.81

x= 17.81 / 7.8452

x = 2.27

x= 2  approximately.

Conclusion: 2 customers are needed each day to break even, thus more than 2 customers per day will make this system profitable for the firm

Note: We have assumed 365 days each year.