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Lawnox, a manufacturer of lawn mowers, predicts that it will purchase 276,000 spark plugs next year. Lawnox estimates that 23,000 spark plugs will be required each month. A supplier quotes a price of $10.00 per spark plug. The supplier also offers a special discount option: If all 276,000 spark plugs are purchased at the start of the year, a discount of 2% off the $10.00 price will be given. Lawnox can invest its cash at 10% per year. It costs Lawnox $250 to place each purchase order. Read the requirements. Requirement 1. What is the opportunity cost of interest forgone from purchasing all 276,000 units at the start of the year instead of in 12 monthly purchases of 23,000 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. Difference in average investment x Investment percentageOpportunity cost Requirements 1. What is the opportunity cost of interest forgone from purchasing all 276,000 units at the start of the year instead of in 12 monthly purchases of 23,000 units per order? Would this opportunity cost be recorded in the accounting system? Why? Should Lawnox purchase 276,000 units at the start of the year or 23,000 units each month? Show your calculations What other factors should Lawnox consider when making its decision? 2. 3. 4. Print Done

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