Ever Lawn can invest its cash at $8\%$ per year. It costs Ever Lawn $$145$ to place each purchase order.

Required

What is the opportunity cost of interest forgone from purchasing all $252,000$ units at the start of the year instead of in $12$ monthly purchases of $21,000$ units per order?

Would this opportunity cost be recorded in the accounting system? Why?

Should Ever Lawn purchase $252,000$ units at the start of the year or $21,000$ units each month? Show your calculations.

$\backslash$table$[[$Difference in average investment,$x,$Investment percentage,$=,$Opportunity cost$],[$$$,x,8\%,=,114,878]]$

Requirement $2.$ 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 $3.$ Should Ever Lawn purchase $252,000$ units at the start of the year or $21,000$ 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 Alternative B

Purchase $252,000$ spark Purchase $21,000$ spark

plugs at beginning of

plugs at beginning of

year

each month

Annual purchase$-$order costs

Annual purchase costs

Annual interest income that could be earned if investment in inventory were invested

Relevant costs