HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hoggs purchasing policy requires that the purchasing agents
Question:
• Famous Frames, Inc.: $ 301 per frame. Delivery schedule: 50 frames per working day (90 days in the quarter).
• Iron Horse Frames Inc.: $ 300 per frame. Delivery schedule: 4,500 (50 frames × 90 days) frames at the beginning of July to last for three months. Hogg accepted Iron Horse Frames Inc.’s bid because it was the low- cost bid.
Instructions
1. Comment on Hogg’s purchasing policy.
2. What are the additional (hidden) costs, beyond price, of Iron Horse Frames Inc.’s bid? Why weren’t these costs considered?
3. Considering just inventory financing costs, what is the additional cost per frame of Iron Horse Frames Inc.’ s bid if the annual cost of money is 12%?
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Related Book For
Financial And Managerial Accounting
ISBN: 9781337119207
14th Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
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