Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 11, Problem 11.26E
Inventory decision, opportunity costs. Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given.
Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order.
- 1. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of in 12 monthly purchases of 17,000 units per order?
Required
- 2. Would this opportunity cost be recorded in the accounting system? Why?
- 3. Should Best Trim purchase 204,000 units at the start of the year or 17,000 units each month? Show your calculations.
- 4. What other factors should Best Trim consider when making its decision?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Grass Eaters, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Grass Eaters estimates that 22,000 spark plugs will be required each month. A supplier quotes a price of $8.00 per spark plug. The supplier also offers
a special discount option: If all 264,000 spark plugs are purchased at the start of the year, a discount of 2% off the $8.00 price will be given. Grass Eaters can invest its cash at 10% per year. It costs Grass Eaters $280 to place each purchase order.
Read the requirements
Requirement 1. What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year instead of in 12 monthly purchases of 22,000 units per order?
Let's begin the calculation for the opportunity cost of interest forgone by first determining the formula, then calculate the opportunity cost.
Opportunity cost
Requirements
What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year…
Global Lawn, a manufacturer of lawn mowers, predicts that it will purchase 228,000 spark plugs next year. Global Lawn estimates that 19,000 spark plugs will be required each month. A supplier quotes a price of
$11.00 per spark plug. The supplier also offers a special discount option: If all 228,000 spark plugs are purchased at the start of the year, a discount of 4% off the $11.00 price will be given. Global Lawn can invest
its cash at 10% per year. It costs Global Lawn $260 to place each purchase order.
Read the requirements.
Requireme
Let's begin t
Differer
Requirements
1. What is the opportunity cost 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?
C----
2. Would this opportunity cost be recorded in the accounting system? Why?
3. Should Global Lawn purchase 228,000 units at the start of the year or 19,000 units each month? Show your
calculations.
4. What other factors should Global Lawn…
Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order.
Q. What other factors should Best Trim consider when making its decision?
Chapter 11 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of in 12 monthly purchases of 17,000 units per order?arrow_forwardBest Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. Should Best Trim purchase 204,000 units at the start of the year or 17,000 units each month? Show your calculations.arrow_forwardBest Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a special discount option: If all 204,000 spark plugs are purchased at the start of the year, a discount of 2% off the $9 price will be given. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Q. Would this opportunity cost be recorded in the accounting system? Why?arrow_forward
- A retailer anticipates selling 3,000 units of its product at a uniform rate over the next year. Each time the retailer places an order for a units, it is charged a flat fee of $50. Carrying costs are S30 per unit per year. How many times should the retailer reorder each year and what should be the lot size to mınımize inventory costs? What is the minimum inventory cost? Use the formula ECQ to obtain your answers. They should order times a year units The minimum inventory cost is $arrow_forwardA retailer anticipates selling 4,050 units of its product at a uniform rate over the next year Each time the retailer places an order for a units, it is charged a flat fee of $75 Carrying costs are $27 per unit per year. How many times should the retailer reorder each vear and what should be the lot size to minimıze inventory costs? What 1s the minimum inventory cost? They should order units times a year. The minimum inventory cost is $ Get Help: Video eBookarrow_forwardWhat is the pricing equation and how is it used? If the product list price is $1000 and the retailer typically discounts the product at the end of the season by 20% on list price as an Incentive to sell the remaining 20% of the inventory to make room for next season’s products, what amount of upsell effort (Extra Fees for services) would be required all season to achieve an average Final Price paid by customers of 6% over list price over the entire season? Show your equations and calculations. short answerarrow_forward
- What is the pricing equation and how is it used? If the product list price is $1000 and the retailer typically discounts the product at the end of the season by 20% on list price as an Incentive to sell the remaining 20% of the inventory to make room for next season’s products, what amount of upsell effort (Extra Fees for services) would be required all season to achieve an average Final Price paid by customers of 6% over list price over the entire season? Show your equations and calculations.arrow_forwardAnti-Corona, a distributor of facial mask, predicts that it will purchase 306,000 masks next year. Anti-Corona estimates that 25,500 masks will be required each month. A supplier quotes a price of $10 per facial mask. The supplier also offers a special discount option: If all 306,000 masks are purchased at the start of the year, a discount of 3% off the $10 price will be given. Anti-Corona can invest its cash at 12% per year. It costs Anti-Corona $300 to place each purchase order. (a)What is the opportunity cost of interest forgone from purchasing all 306,000 units at the start of the year instead of in 12 monthly purchases of 25,500 units per order? (b) Should Anti-Corona purchase 306,000 units at the start of the year or 25,500 units each month? Show your calculations with reasons 4(c) The company is a multinational company with many branches in different countries around the world. The 12% for return on cash is based on expected return of cash in US. The company is planning to…arrow_forwardEconomic order quantity (EOQ). Tinnendo, Inc. believes it will sell 4 million zen-zens, an electronic game, this coming year. Note that this figure is for annual sales. The inventory manager plans to order zen-zens 25 times over the next year. The carrying cost is $0.01 per zen-zen per year. The order cost is $510 per order. What are the annual carrying cost, the annual ordering cost, and the optimal order quantity for the zen-zens? Verify your answer by calculating the new total inventory cost. What is the annual carrying cost for the zen-zens? (Round to the nearest dollar.)arrow_forward
- ClipClop Company sells horseshoes to customers at a discount of 4% if the customer orders more than 10,000 horseshoes in a year. The price per shoe is $2. In April, Oats Company orders 4,000 horseshoes from ClipClop. Based on past experience with Oats Company, ClipClop expects Oats to meet the volume threshold of 10,000 horseshoes by the end of the year. What amount of revenue should ClipClop record in connection with the April sale? $7,680 $20,000 $0 because ClipClop does not know if Oats will meet the volume discount threshold $8,000arrow_forwardA supplier sells MF Tires to dealers. The annual demand is approximately1,000 tires. The supplier pays P50 for each tire and estimates that the annualholding cost is 20 percent of the total value of tires. It costs approximatelyP25 to place an order. The supplier currently orders 80 tires per month.Required:a. Calculate ordering, holding, and total inventory costs for thecurrent ordered quantity.b. Determine the EOQ.c. How many orders will be placed per year using the EOQ?d. Calculate ordering, holding, and total inventory costs for the EOQand also determine the change in total inventory cost.arrow_forwardGelmite & Sons Hardware is considering introducing a cash discount policy to its customers so as toimprove current sales. There are three possible scenarios that include monthly estimates. Gelmite& Sons uses a 60% mark up on cost on all their products as a general rule. Fixed costs are R8 000per month. Scenario A: Representing the Current ScenarioCompany sold 600 units of the spark nail which they ordered at a wholesaler in Shoppers Town fora cost price of R100 each. Scenario B: Representing initial sales target Company will sell 800 units of the spark nail which they ordered at a wholesaler in Shoppers Townfor a cost price of R100 each.These sales units are achieved after the introduction of a 20% markdown on the original sellingprice.Scenario C: Representing a scenario where sales targets are surpassed Company will sell 1 000 units of the spark nail which they ordered at a wholesaler in Shoppers Townfor a cost price of R100 each. In order to achieve the increased sales,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Inventory management; Author: The Finance Storyteller;https://www.youtube.com/watch?v=DZhHSR4_9B4;License: Standard Youtube License