Final answer:
The question deals with the purchase of inventory in a business context, mentioning a transaction of purchasing 2,000 units at $10 each. It also refers to economies of scale and how increasing production quantities leads to lower average costs per unit.
Step-by-step explanation:
The question involves the concept of economies of scale and inventory purchase transactions in the context of a business or accounting class. Allied's initial purchase of inventory is a straightforward transaction where 2,000 units were bought at a price of $10 each, totaling $20,000. However, the question also alludes to more complex scenarios where purchases over time might lead to complicated figures due to factors like varying prices and quantities.
To illustrate the point, let's consider a larger scale scenario. Economies of scale occur when increasing the quantity of production leads to lower costs per unit. As shown in Figure 7.9, a small factory producing 1,000 alarm clocks may have an average cost of $12 per clock, while a medium-sized factory producing 2,000 clocks sees the cost drop to $8 per clock. If the factory scales up production to 5,000 clocks, the average cost can decrease even further to $4 per clock. This concept explains how businesses achieve cost efficiency by scaling up production.