Answer (D) is correct . The total cost of each of the four methods that Rolling Stone is considering can be calculated as follows: Lockbox: $25 per-bank fee × 170 banks = $??4,250 Drafts: $2 per-draft fee × 4,000 drafts = $??8,000 ? Bank Float: $1,000,000 in checks written × 2% fee = $20,000 Electronic Transfer: $18 per-transfer fee × 700 items = $12,600 These costs are subtracted from the interest that could be earned under each method to arrive at the relevant gain or loss: Lockbox: $5,240 – $4,250 = $????990 Drafts: $6,500 – $8,000 = $(1,500) Bank Float: $22,000 – = $?2,000 $20,000 Electronic Transfer: $14,000 – = $?1,400 $12,600
Answer (A) is incorrect because The bank float is also a cost-effective method.
Answer (B) is incorrect because The lockbox system is also a cost-effective method.
Answer (C) is incorrect because Drafts are not a cost-effective method.
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Which of these methods of speeding cash flow should Rolling Stone Corporation adopt?