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Ever Lawn can invest its cash at 8 % per year. It costs Ever Lawn $ 1 4 5 to place each purchase order. Required
Ever Lawn can invest its cash at per year. It costs Ever Lawn $ to place each purchase order.
Required
What is the opportunity cost of interest forgone from purchasing all units at the start of the year instead of in monthly purchases of units per order?
Would this opportunity cost be recorded in the accounting system? Why?
Should Ever Lawn purchase units at the start of the year or units each month? Show your calculations.
tableDifference in average investment,Investment percentage,Opportunity cost$$
Requirement Would this opportunity cost be recorded in the accounting system? Why?
The opportunity cost would not be recorded in the accounting system, due to transaction being recorded in the accounting system.
Requirement Should Ever Lawn purchase units at the start of the year or units each month? Show your calculations.
Begin by calculating the relevant costs for each alternative. Then, calculate the difference between the two alternatives.
Alternative A
Purchase spark plugs at beginning of year
Annual purchaseorder costs
Annual purchase costs
Annual interest income that could be earned
if investment in inventory were invested
Relevant costs
Alternative B
Purchase spark
plugs at beginning of each month
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