Question

Turquoise, Inc. is trying to decide whether to purchase identical inventory from one of the following suppliers: Supplier A Supplier B Cost $ 200 $ 220 Invoice terms 1/10, n/30 2/10, n/30 Shipping terms FOB shipping point FOB destination Shipping cost $ 20 $ 24 Required: Assume the company will pay within the discount period. What is the actual cost of the inventory if purchased from each supplier?

Answer 1

Answer:

1. The actual cost of the inventory if purchased from supplier A: $218

2. The actual cost of the inventory if purchased from supplier B: $239.6

Explanation:

1. Supplier A cost $200

Credit terms of 1/10, n/30 means that 1% discount for the payment within 10 days and the full amount to be paid within 30 days.

Shipping cost $20. The company will pay within the discount period. Turquoise, Inc. pays and take the discount: 1% x $200 = $2

Actual cost of the inventory = Purchase cost + Shipping cost - Purchase discount = $200 + $20 - $2 = $218

2. Supplier B cost $220

Credit terms of 2/10, n/30 means that 2% discount for the payment within 10 days and the full amount to be paid within 30 days.

Shipping cost $24. The company will pay within the discount period. Turquoise, Inc. pays and take the discount: 2% x $220 = $4.4

Actual cost of the inventory = Purchase cost + Shipping cost - Purchase discount = $220 + $24 - $4.4 = $239.6