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Part $1$

Global LawnGlobal$$Lawn$,$

a manufacturer of lawn$$ mowers, predicts that it will purchase

$240$ comma $000240,000$

spark plugs next year.

Global LawnGlobal$$Lawn

estimates that

$20$ comma $00020,000$

spark plugs will be required each month. A supplier quotes a price of

$ $9$$$9$

per spark plug. The supplier also offers a special discount$$ option: If all

$240$ comma $000240,000$

spark plugs are purchased at the start of the$$ year, a discount of

$22\%$

off the

$ $9$$$9$

price will be given.

Global LawnGlobal$$Lawn

can invest its cash at

$66\%$

per year. It costs

Global LawnGlobal$$Lawn

$ $140$$$140$

to place each purchase order.

Required

$1.$

What is the opportunity cost of interest forgone from purchasing all

$240$ comma $000240,000$

units at the start of the year instead of in $12$ monthly purchases of

$20$ comma $00020,000$

units per$$ order?

$2.$

Would this opportunity cost be recorded in the accounting$$ system? Why?

$3.$

Should

Global LawnGlobal$$Lawn

purchase

$240$ comma $000240,000$

units at the start of the year or

$20$ comma $00020,000$

units each$$ month? Show your calculations.

Question content area bottom

Part $1$

Requirement $1.$ What is the opportunity cost of interest forgone from purchasing all

$240$ comma $000240,000$

units at the start of the year instead of in $12$ monthly purchases of

$20$ comma $00020,000$

units per$$ order?

$$Let$\text{'}$s begin the calculation for the opportunity cost of interest forgone by first determining the formula.$$ Then, calculate the opportunity cost.

Part $2$

$$

Difference in average investment

x

Investment percentage

$=$

Opportunity cost

x

$$

$=$

$$