A Firm Has Arranged for a Lockbox System to Reduce

question 224

Multiple Choice

A firm has arranged for a lockbox system to reduce the collection time of accounts receivable.Currently the firm has an average collection period of 43 days, an average age of inventory of 50days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle .

• A) will not change
• B) increases by 3 days
• C) is 93 days
• D) decreases by 3 days

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Definitions:

Servicing Materials

Materials and supplies used in the maintenance and repair of machinery or equipment during the production process or in providing services.

Flexible Budget

A budget designed to adapt to variations in activity or volume levels.

Total Fixed Cost

The sum of all costs that remain constant regardless of the level of production or sales activity within a certain period.

Activity Level

A measure of the volume of production or operations, often influencing costs and used to adjust budgets or forecasts in business.