Lawnwolf a manufacturer of lawn mowers, predicts that it will purchase 228,000 spark plugs next year.

estimates that 19,000 spark plugs will be required each month. A supplier quotes a price of

$8 per spark plug. The supplier also offers a special discountoption: If Lawnwolf purchases all

228,000 spark plugs at the start of the year, the supplier gives a 4% discount off the $8 price.

Lawnwolf can invest its cash at 10% per year. Lawnwolf spends $250 to place each purchase order.

Requirements:

1. What is the opportunity cost for Lawnwolf 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?

2. Would managers record this opportunity cost in the accounting system? Why?

3. Should Lawnwolf purchase 228,000 units at the start of the year or 19,000 units each month? Show your calculations.

4. What other factors should Lawnwolf consider when making itsdecision?