Question

1. (10 points) Your firm generally receives 4 checks a month. The check amounts and the collection delay for each check is shown below. Given this information, what is the amount of the average daily collection float? Assume a 30-day month. Item Number Delay Item Amount $8,400 $8,300 $3,200 $7,200

Answer 1

Solution :

The formula for calculating the average daily collection float is =

[ ( Amount of Item 1 * No. of days of delay of Item 1 ) + ( Amount of Item 2 * No. of days of delay of Item 2 ) + ………………..   ( Amount of Item n * No. of days of delay of Item n ) ] / 30

As per the information given in the question we have

Amount of Item 1 = $ 8,400    ;   No. of days of delay of Item 1 = 6

Amount of Item 2 = $ 8,300    ;   No. of days of delay of Item 2 = 2

Amount of Item 3 = $ 3,200    ;   No. of days of delay of Item 3 = 3

Amount of Item 4 = $ 7,200    ;   No. of days of delay of Item 4 = 4

Thus applying the above information in the formula we have

= [ ( $ 8,400 * 6 ) + ( $ 8,300 * 2 ) + ( $ 3,200 * 3 ) + ( $ 7,200 * 4 ) ] / 30

= [ $ 50,400 + $ 16,600 + $ 9,600 + $ 28,800 ] / 30

= $ 105,400 / 30

= $ 3,513.333

= $ 3,513 ( when rounded off to the nearest whole number )

Thus the amount of the average daily collection float = $ 3,513.3333