Henleigh Hill, CFO of HH Corp., uses a decentralized company processing center for check collection. She estimates that the total annual cost of collections is currently $300,000. Henleigh is considering switching to a centralized company processing center, but she is worried about the required increase in fixed costs. Use the following assumptions to determine the maximum fixed cost of the centralized company processing center that would make Henleigh indifferent between a decentralized or centralized company processing center.Number of checks processed per year = 450,000Average face value of checks = $1,000Collection float for centralized processing = five daysVariable processing cost per check for centralized processing = $0.25Opportunity cost rate = 5 percent

Total annual cost will be including the fixed cost as well as the variable cost

Answered: Henleigh Hill, CFO of HH Corp., uses a…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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Henleigh Hill, CFO of HH Corp., uses a decentralized company processing center for check collection. She estimates that the total annual cost of collections is currently $300,000. Henleigh is considering switching to a centralized company processing center, but she is worried about the required increase in fixed costs. Use the following assumptions to determine the maximum fixed cost of the centralized company processing center that would make Henleigh indifferent between a decentralized or centralized company processing center.

Number of checks processed per year = 450,000
Average face value of checks = $1,000
Collection float for centralized processing = five days
Variable processing cost per check for centralized processing = $0.25
Opportunity cost rate = 5 percent

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