A Firm Has Arranged for a Lockbox System to Reduce

question 191

Essay

A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, 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 has total annual outlays of $15,000,000 and currently pays 9 percent for its financing. (Assume a 360-day year.)
(a) Calculate the cash conversion cycle before and after the lockbox system.
(b) Calculate the savings in financing costs from the lockbox system.

Identify and describe the difference between plantwide overhead rate, departmental overhead rate, and activity-based costing (ABC) methods.

Recognize the advantages and disadvantages of using a plantwide overhead rate for overhead cost allocation.

Understand the concept of cost pools and how they are used in overhead cost allocation.

Acknowledge the influence of cost assignments on management's pricing and product decisions.

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Definitions:

Specific Prejudice

Bias or prejudgment against a particular group or individual based on specific characteristics.

Lineup Foils

Individuals in a police lineup who are not suspects but are included to ensure the fairness and reliability of the identification process.

Therapeutic Community

A structured treatment environment where patients and therapists live together to work towards healing and rehabilitation.

Social Psychological Factors

Refer to the influences stemming from an individual's social interactions and societal norms that affect their thoughts, behaviors, and feelings.