AICPA CPA-Business Exam - Topic 1 Question 38 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 38
Topic #: 1

Newman Products has received proposals from several banks to establish a lockbox system to speed up receipts. Newman receives an average of 700 checks per day averaging $1,800 each, and its cost of short-term funds is 7 percent per year. Assuming that all proposals will produce equivalent processing results and using a 360-day year, which one of the following proposals is optimal for Newman?

AA flat fee of $125,000 per year.

BA fee of 0.03 percent of the amount collected.

CA compensating balance of $1,750,000.

DA fee of $0.35 per check plus 0.01 percent of the amount collected.

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. The optimal proposal is that which has the lowest cost for Newman.

Thus, the lowest cost is 'c' at $122,500.

Choices 'a', 'b', and 'd' are incorrect, per the above calculations/Explanation:.

by Lashandra at May 05, 2022, 03:57 AM

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Shaniqua

4 months ago

Isn't $1,750,000 for a compensating balance a bit excessive?

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Rickie

4 months ago

Totally agree, option D looks pretty reasonable!

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Tenesha

4 months ago

Wait, how does a compensating balance even work?

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Antonette

4 months ago

I think option B could be the best deal overall.

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Levi

5 months ago

A flat fee of $125,000 seems high for 700 checks a day.

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Justa

5 months ago

I'm a bit confused on this one. Is the Governance Approach also a possibility? I feel like there might be some rules or standards we need to follow when packaging and communicating the data.

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Stephane

5 months ago

I'm a bit confused on this one. Should we be looking at content sharing sites like Facebook or professional networking sites? I'm not sure which option would be the best fit for this startup's needs.

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Wayne

5 months ago

I'm a bit confused by the options here. Is "use tables;" or "desc tables;" also a valid way to view all tables in a project?

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