Question

Lawnwolf a manufacturer of lawn​ mowers, predicts that it will purchase 240,000 spark plugs next year.

estimates that 20,000 spark plugs will be required each month. A supplier quotes a price of
$11 per spark plug. The supplier also offers a special discount​option: If Lawnwolf purchases all
240,000 spark plugs at the start of the​ year, the supplier gives a 44​% discount off the $11 price.
Lawnwolf can invest its cash at 1010​% per year. Lawnwolf spends $220 to place each purchase order.
Requirements:
1. What is the opportunity cost for Lawnwolf of interest 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 managers record this opportunity cost in the accounting​ system? Why?
3. Should Lawnwolf purchase 240,000 units at the start of the year or 20,000 units each​ month? Show your calculations.
4. What other factors should Lawnwolf consider when making its​decision?

Answer 1

Answer: 117370, No,

Step-by-step explanation:

The opportunity cost of interest forgone at the start of the year will be:

1173700 × 0.10 = 117,370.

The attached documents contain a thorough explanation to the question.