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Assume that each day a company writes and receives checks totaling $10,000. If it takes five days for the checks to clear and be deducted from the company's account, and only four days for the deposits to clear, what is the float?
Suggested Answer: D
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Choice 'd' is correct. Reorder costs do not impact the level of safety stock.
Choices 'a', 'b', and 'c' are incorrect. Safety stock levels are affected by:
1. Uncertain sales forecasts - greater uncertainty means a higher level of safety stock should be carried.
2. Dissatisfaction of customers - if customers are dissatisfied with back orders (which occur when there are stock outs), then more safety stock should be carried to prevent stock outs.
3. Uncertain lead times - greater uncertainty means a higher level of safety stock is needed.
29 comments · newest first
FR
Francine
10 months ago
So, is it really just $10,000? Sounds simple!
AN
Anjelica
11 months ago
Yup, checks take longer to clear than deposits.
LI
Lindsey
11 months ago
Wait, how does that add up? Seems off.
CU
Curtis
11 months ago
Totally agree, it's all about the timing!
RO
Rochell
11 months ago
The float is $10,000.
AR
Ardella
12 months ago
I think the float is actually $25,000 because we have checks and deposits happening simultaneously, but I’m not completely confident in that.
MO
Mose
12 months ago
I’m a bit confused about the timing. If checks take five days and deposits take four, does that mean we have a net float?
TA
Tawny
12 months ago
This reminds me of a practice question where we calculated float based on similar timing. I think the float might be $10,000 since checks take longer to clear.
CA
Caren
1 year ago
I remember float is the difference between the time checks are written and when they clear, but I'm not sure how to calculate it here.
HO
Holley
1 year ago
Okay, I think I got it. The float is the difference between the time it takes for the checks to clear versus the deposits to clear. Since the checks take 5 days and the deposits take 4 days, there's a 1-day difference where the company has an extra $10,000 in their account. So the float must be $10,000, which is answer C.
TR
Tresa
1 year ago
Hmm, I'm a little unsure about this one. Let me walk through it again. The company has $10,000 in checks going out and $10,000 in deposits coming in each day. The checks take 5 days to clear, but the deposits only take 4 days. So there's a 1-day difference where the company has an extra $10,000 in their account. I think that means the float is $10,000, so the answer is C.
NI
Nieves
1 year ago
This seems straightforward. The company has $10,000 in checks that are outstanding for 5 days, but the deposits only take 4 days to clear. So the float must be the $10,000 that's in the account for that extra day. I'm pretty confident C is the right answer.
DO
Dorthy
1 year ago
Okay, let me think this through step-by-step. The company writes and receives $10,000 in checks each day, and it takes 5 days for the checks to clear, but only 4 days for the deposits to clear. So the float must be the amount of money that's in the account for that extra day before the checks are deducted. I think the answer is C, $(10,000).
AL
Allene
1 year ago
Somebody call the float police, because I'm feeling a little floataxed trying to solve this one.
PA
Paola
1 year ago
This is a real head-scratcher. I feel like I'm in a float tank just trying to figure it out. Wait, did I just make a pun? I'm going with D, $25,000.
NE
Nelida
1 year ago
I agree with D) $25,000.
JA
Jade
1 year ago
I'm going with A) $10,000.
EL
Eladia
1 year ago
I think the answer is B) $0.
ST
Stanford
1 year ago
Ugh, I hate these tricky float questions. Isn't the float supposed to be negative? I'm going to go with C, $(10,000).
TY
Tyra
1 year ago
I agree, the float is negative at $(10,000).
TE
Tequila
1 year ago
I'm pretty sure it's $(10,000).
WI
William
1 year ago
I think the float is actually $0.
LU
Lucy
1 year ago
Hold on, let me break this down. If they write and receive $10,000 in checks per day, and the checks take 5 days to clear but the deposits only take 4 days, that means they have an extra day's worth of cash in their account. So the float must be $10,000.
MO
Mona
1 year ago
User 2: Yeah, that makes sense with the timing of the checks and deposits.
LA
Latia
1 year ago
User 1: The float must be $10,000.
AL
Alonzo
1 year ago
This seems like a simple math problem. The float is the difference between the time it takes for checks to clear and the time it takes for deposits to clear, so it must be $25,000.
JU
Judy
2 years ago
But if the checks take longer to clear than the deposits, wouldn't that create a float of $10,000?
MO
Mollie
2 years ago
I disagree, I believe the answer is A) $10,000.
JU
Judy
2 years ago
I think the answer is B) $0.