2B5G POWELL INDUSTRIES DEALS WITH CUSTOMERS THROUGHOUT THE COUNTRY AN...

142.

CSO: 2B5b

LOS: 2B5g

Powell Industries deals with customers throughout the country and is attempting to more

efficiently collect its accounts receivable. A major bank has offered to develop and

operate a lock-box system for Powell at a cost of $90,000 per year. Powell averages 300

receipts per day at an average of $2,500 each. Its short-term interest cost is 8% per year.

Using a 360-day year, what reduction in average collection time would be needed in

order to justify the lock-box system?

a.

0.67 days.

b.

1.20 days.

c.

1.25 days.

d.

1.50 days.