The Porcelain Company, Inc. makes five remittances to the bank each month. As th
ID: 2757396 • Letter: T
Question
The Porcelain Company, Inc. makes five remittances to the bank each month. As the company’s Chief Financial Officer, you are conducting a review of the current system being utilized. Your accounting department has provided you with the following information: (assume each month has 30 days) Complete parts a. through d. below.
Remittances per month in dollars Mail Float Availability Float Dollar-Day Float $200,000 3 1 10,000 6 2 $400,000 2 1 $5,000 4 1 $350,000 3 2 $965,000 Calculate the total dollar-day float for the month. Calculate the average dollar-day float. Calculate the average collection float in days. Calculate the annual cost of float assuming an annual opportunity costs of 6%.Explanation / Answer
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Remittance per month Mailing Float Availablity float Dollar day float
(1) (2) (3) (4) = (1) x (2) x (3)
b. Average dollar day float = Total dollar day float/Days in month = 3,855,000/30 = $128,500
c. Calcualate the average collection float in days = Total dollar day float/Total remitance = 3,855,000/965,000 =3.99
d. Annual cost of float = Average dollar day float x opportunity cost ie. 6%
= $1 28,000 x 6%
= $7680
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