ond Company budgets the following purchases of direct materials for the first quarter of the year:

January February March

Budgeted purchases $$120,000$ $$86,000$ $$105,000$

All purchases of direct materials are made on credit. On average, the company pays for $80\%$ of its purchases in the month of acquisition and the remainder in the following month. Purchases take place fairly evenly throughout the month.

 

 

Required:

$1.$ For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that there is no $($cash$)$ discount for early payment?

$2.$ For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that the purchase terms are $2/15,$ net $30?$ The company$$s policy is to take advantage of all cash discounts for early payment.

$3$a$.$ Using the purchase terms in Requirement $2,$ calculate the opportunity cost if Bond does not decide to take advantage of the early payment discount.

$3$b$.$ Can it be considered good economic policy to take advantage of early payment discounts?