New-Markups Department Store has annual credit sales of $ 90 million. John Harris, the collection manager, has estimated that it takes 9 days for a mailed payment to be credited to Newman's account and that this time can be cut to 3 days if Newman opens up a lockbox account with a local bank. The account in which the checks are placed earns 7% annually. The lockbox agreement calls for a monthly payment of $1,200 and, in addition, a monthly charge of $0.05 per check. Newman's currently processes 80,000 checks monthly. (Treat these expenses as if they occur at the beginning of the year)

a) By how much will Newman's average bank balance increase if it adopts the lockbox? b) Suppose Newman's has found a regular 20% of its customers account for 80% of credit sales. Should Mr Harris open up the lockbox and use it only for this 20% of the customers?