analysis3.1 - AC2720 Module 3 Cost Estimation Techniques...

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AC2720: Module 3 Cost Estimation Techniques Analysis 3.1 Bottlenecks, Theory of Constraints, and Throughput-Margin Analysis 1 There are two problems in this assessment. You need to complete both the problems. Problem 1: Inventory Decision and 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 provided. Best Trim can invest its cash at 10% per year. It costs Best Trim $260 to place each purchase order. Answer the following questions: 1. What is the opportunity cost of interest forgone from purchasing all 204,000 units at the start of the year instead of 12 monthly purchases of 17,000 units per order? 2. Would this opportunity cost be recorded in the accounting system? Why?
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