Tocor Is Considering the Implementation of a Lockbox Collection System

question 33

Multiple Choice

Tocor is considering the implementation of a lockbox collection system for its mid-western and western sales regions.Sales in those two regions are 30 percent of Tocor's annual sales of $560 million.The lockbox system will cost $187,000 a year and reduce collection time by 3 days.If Tocor could invest any released funds at 10.85 percent, should it use the lockbox system? Assume 365 days per year.

• A)Yes, savings of $149,819
• B)Yes, savings of $312,397
• C)No, loss of $37,181
• D)No, loss of $35,100

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Definitions:

Minimum Efficient Scale

The minimum efficient scale is the lowest point of production where a firm can achieve the economies of scale, reducing its cost per unit to the minimum.

Economic Profits

The surplus or profit gained by a firm after subtracting all its costs, including both explicit and implicit costs, from its total revenues.

Accounting Profits

The net income for a company calculated by subtracting total expenses from total revenues, according to standard accounting practices.

Short Run

A period of time in economics during which at least one input, such as plant size, is fixed and cannot be changed.