Question: Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes, with an average payment size of $1,500. The bank's charge for operating the lock boxes is either $.40 a check or compensating balances of $800,000.
a. If the interest rate is 9 percent, which method of payment is cheaper?
b. What reduction in the time to collect and process each check is needed to justify use of the lock-box system?
Book for guidance : Operations Management for Competitive Advantage by Chase, Jacobs, & Aquilano