Purchase Discounts Lost

Estimate the money that could be saved by the accounts payable and cash disbursements departments if a basic batch processing system were implemented. Assume that the clerical workers cost the firm $12 per hour that 13,000 vouchers are prepared, and that 5,000 checks are written per year. Assume that total cash disbursements to vendors amount to $5 million per year. Due to sloppy bookkeeping, the current system takes advantage of only about 25 percent of the discounts offered by vendors for timely payments. The average discount is 2 percent if payment is made within 10 days. Payments are currently made on about the 15th day after the invoice is received. Make your own assumptions (and state them) regarding how long specific tasks will take. Also discuss any intangible benefits of the system. (Don’t worry about excessive paper documentation costs.)

Anna Feinberg began working for the Pfeiffer Company in 1968 at age seventeen. By 2005, she had attained the position of bookkeeper, office manager, and assistant treasurer. In appreciation for her skill, dedication, and long years of service, the Pfeiffer board of directors resolved to increase Feinberg’s monthly salary to $4,000 and to create for her a retirement plan. The plan allowed that Feinberg would be given the privilege of retiring from active duty at any time she chose and that she would receive retirement pay of $2,000 per month for life, although the Board expressed the hope that Feinberg would continue to serve the company for many years. Feinberg, however, chose to retire two years later. The Pfeiffer Company paid Feinberg her retirement pay until 2014. The company thereafter discontinued payments.

a. What are the arguments that the company’s promise to pay Feinberg $2,000 per month for life is enforceable?

b. What are the arguments that the company’s promise is not enforceable?

c. What is the proper outcome? Explain.