A company has affiliates in seven countries. Each affiliate enters into transactions with the other affiliates in the course of business. The company has determined that on average a remittance from one affiliate to another costs $40. This cost includes bank fees for international funds transfer, costs in each affiliate to process the payment/receipt, and average cost to exchange currency. (Except for this cost, the information for each question is specific to that question.)

Aggregating payments

1. In one quarter, the US affiliate made 24 purchases from the Japan affiliate and the Japan affiliate made 8 purchases from the US affiliate.

a. What is the total transaction costs of payments if each affiliate pays each invoice separately?

b. What is the total transaction costs of payments if the US affiliate aggregates all amounts due to the Japan affiliate and makes a single payment covering the total due on all 24 invoices and the Japan affiliate aggregates all amounts due to the US affiliate and makes a single payment covering the total due on all 8 invoices?

2a. If each of the seven affiliates averages 12 purchases from each of the other affiliates during a quarter, what is the total transaction costs for payments if each affiliate pays each invoice separately?

b. What is the total transaction costs for payments if each affiliate aggregates all amounts due for the quarter and makes a single payment to each other affiliate covering that total?