CMA Study Group

Why avg is computed to get an answer....kindly help
American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men’s jackets during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. To ensure availability of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can invest cash at 8%, the company’s opportunity cost of purchasing the 60,000 units at the beginning of the year isA.$1,320
-------------------------------------------
Mariam Adnan
Accountant
Manama
Bahrain
-------------------------------------------

If 60,000 units are not purchased at the beginning of the year, there is an opportunity for the unused cash to earn 8%. We have to use the average purchase because the purchase was done monthly. To expound this, please see below.



-------------------------------------------
Kenneth
Accountant
Dubai
United Arab Emirates
-------------------------------------------






Original Message:
Sent: 05-20-2014 05:26 AM
From: Mariam Adnan
Subject: p2 q61 unit 9

Why avg is computed to get an answer....kindly help
American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. To ensure availability of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can invest cash at 8%, the company's opportunity cost of purchasing the 60,000 units at the beginning of the year isA.$1,320
-------------------------------------------
Mariam Adnan
Accountant
Manama
Bahrain
-------------------------------------------