Cross Collectibles Currently Fills Mail Orders from All Over S

question 39

Multiple Choice

Cross Collectibles currently fills mail orders from all over S.A.and receipts come in to headquarters in Cape Town.The firm's average accounts receivable (A/R) is R2.5 million and is financed by an 11 percent annual, simple interest bank loan.Cross is considering a regional lockbox system to speed up collections which it believes will reduce A/R by 20 percent.The annual cost of the system is R15,000.What is the estimated net annual savings to the firm from implementing the lockbox system?

• A) R500,000
• B) R30,000
• C) R60,000
• D) R55,000
• E) R40,000

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Definitions:

Balance Sheet

The balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time, offering insights into its financial health.

Lower of Cost

A conservative accounting method that records the inventory's value at the lower amount between its original cost and current market value.

Inventory Valuation

The method used to assess and report the value of a company's inventory in its financial statements, affecting cost of goods sold and net profit.

Consigned Merchandise

Goods that are sent by their owner (consignor) to an agent (consignee), who tries to sell the goods for a fee without taking ownership.