Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 11.26E
Inventory decision, opportunity costs. Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 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 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given.
Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order.
- 1. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of in 12 monthly purchases of 17,000 units per order?
Required
- 2. Would this opportunity cost be recorded in the accounting system? Why?
- 3. Should Best Trim purchase 204,000 units at the start of the year or 17,000 units each month? Show your calculations.
- 4. What other factors should Best Trim consider when making its decision?
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Global Lawn, a manufacturer of lawn mowers, predicts that it will purchase 228,000 spark plugs next year. Global Lawn estimates that 19,000 spark plugs will be required each month. A supplier quotes a price of
$11.00 per spark plug. The supplier also offers a special discount option: If all 228,000 spark plugs are purchased at the start of the year, a discount of 4% off the $11.00 price will be given. Global Lawn can invest
its cash at 10% per year. It costs Global Lawn $260 to place each purchase order.
Read the requirements.
Requireme
Let's begin t
Differer
Requirements
1. What is the opportunity cost of interest forgone from purchasing all 228,000 units at the start of the year instead of
in 12 monthly purchases of 19,000 units per order?
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2. Would this opportunity cost be recorded in the accounting system? Why?
3. Should Global Lawn purchase 228,000 units at the start of the year or 19,000 units each month? Show your
calculations.
4. What other factors should Global Lawn…
Grass Eaters, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Grass Eaters estimates that 22,000 spark plugs will be required each month. A supplier quotes a price of $8.00 per spark plug. The supplier also offers
a special discount option: If all 264,000 spark plugs are purchased at the start of the year, a discount of 2% off the $8.00 price will be given. Grass Eaters can invest its cash at 10% per year. It costs Grass Eaters $280 to place each purchase order.
Read the requirements
Requirement 1. What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year instead of in 12 monthly purchases of 22,000 units per order?
Let's begin the calculation for the opportunity cost of interest forgone by first determining the formula, then calculate the opportunity cost.
Opportunity cost
Requirements
What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year…
Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 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 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order.
Q. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of in 12 monthly purchases of 17,000 units per order?
Chapter 11 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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