Lawnox, a manufacturer of lawn mowers, predicts that it will purchase 240,000 spark plugs next year. Lawnox estimates that 20,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 240,000 spark plugs are purchased at the start of the year, a discount of 4% off the $9 price will be given. Lawnox can invest its cash at 10% per year. It costs Lawnox $200 to place each purchase order.
Required
1. How much interest income would be forgone from purchasing all 240,000 units at the start of the year instead of in 12 monthly purchases of 20,000 units per order?
2. Would this opportunity cost be recorded in the accounting system? Why?
3. Should Lawnox purchase 240,000 units at the start of the year or 20,000 units each month? Show your calculations.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more