In the solution of this question, it makes $33,000 2 to find average incremental investment for the year and finds $16,500.

Why it divides $33,000 by 2?

A tailor estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. A zipper supplier has quoted a price of $.60 per zipper. The tailor would prefer to purchase 5,000 units per month, but the supplier is unable to guarantee this delivery schedule. To ensure availability of these zippers, the tailor is considering the purchase of all 60,000 units at the beginning of the year. Assuming the tailor can invest cash at 8%, the tailor's opportunity cost of purchasing the 60,000 units at the beginning of the year is A. $1,440 B. $36,000 C. $1,320 Answer (C) is correct. The cost of 60,000 zippers is $36,000(60,000$.60). The monthly cost is $3,000(5,000$.60). The company would like to purchase the items monthly, so it will invest at least $3,000 in January. Accordingly, the zippers to be used in January will be purchased at the first of the year even if no special purchase is made. Thus, the incremental advance purchase is only $33,000. Because the alternative arrangement involves a constant monthly expenditure of $3,000, the incremental investment declines by that amount each month (for example, January $36,000$3,000=$33,000; February $33,000$3,000=$30,000; December $3,000$3,000=$0). The result is that the average incremental investment for the year is and the opportunity cost of purchasing 60,000 units at the beginning of the year is $1,320($16,5008%). A tailor estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. A zipper supplier has quoted a price of $.60 per zipper. The tailor would prefer to purchase 5,000 units per month, but the supplier is unable to guarantee this delivery schedule. To ensure availability of these zippers, the tailor is considering the purchase of all 60,000 units at the beginning of the year. Assuming the tailor can invest cash at 8%, the tailor's opportunity cost of purchasing the 60,000 units at the beginning of the year is A. $1,440 B. $36,000 C. $1,320 Answer (C) is correct. The cost of 60,000 zippers is $36,000(60,000$.60). The monthly cost is $3,000(5,000$.60). The company would like to purchase the items monthly, so it will invest at least $3,000 in January. Accordingly, the zippers to be used in January will be purchased at the first of the year even if no special purchase is made. Thus, the incremental advance purchase is only $33,000. Because the alternative arrangement involves a constant monthly expenditure of $3,000, the incremental investment declines by that amount each month (for example, January $36,000$3,000=$33,000; February $33,000$3,000=$30,000; December $3,000$3,000=$0). The result is that the average incremental investment for the year is and the opportunity cost of purchasing 60,000 units at the beginning of the year is $1,320($16,5008%)