Iron Horse Frames Inc.: $300 per frame. Delivery schedule: 4,500 (50 frames × 90 days)

frames at the beginning of July to last for three months.

Hogg accepted Iron Horse Frames Inc.’s bid because it was the low-cost bid.

Instructions 1. Comment on Hogg’s purchasing policy.

2. What are the additional (hidden) costs, beyond price, of Iron Horse Frames Inc.’s bid? Why weren’t these costs considered?

3. Considering just inventory financing costs, what is the additional cost per frame of Iron Horse Frames Inc.’s bid if the annual cost of money is 12%? (Hint: Determine the average value of frame inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of frames.)