Problem 19 - Accounting

Question

A retailer is considering the purchase of 100 units of a specific item from either of two suppliers. Their offers are as follows: A: \(\$ 375\) a unit, total of \(\$ 37,500,2 / 10, \mathrm{n} / 30\), plus transportation costs of \(\$ 1,050\). B: \(\$ 380\) a unit, total of \(\$ 38,000,1 / 10, \mathrm{n} / 30\), no charge for transportation. Which of the two offers, A or B, yields the lower price?

Step-by-Step Solution

Answer

Supplier B's offer yields a lower total cost.

Step 1: Calculate Total Cost for Supplier A

Supplier A offers the items at \\(375 each for 100 units, resulting in a total purchase cost of \\)37,500. Additionally, there are transportation costs of \\(1,050. Therefore, the total cost with transportation is \( 37,500 + 1,050 = \\)38,550 \). Supplier A offers a 2% discount if paid within 10 days, so if the retailer takes advantage of this, the discounted price would be \( 37,500 \times 0.98 = \\(36,750 \). Adding the transportation cost back, the total after the discount becomes \( 36,750 + 1,050 = \\)37,800 \).

Step 2: Calculate Total Cost for Supplier B

Supplier B offers the items at \\(380 each for 100 units, resulting in a total purchase cost of \\)38,000. Transportation is included at no extra cost. Supplier B offers a 1% discount if paid within 10 days, so if the retailer takes advantage of this, the discounted price would be \( 38,000 \times 0.99 = \$37,620 \).

Step 3: Compare Total Costs

After considering discounts, Supplier A's total cost is \\(37,800, while Supplier B's total cost is \\)37,620. Therefore, Supplier B offers the lower total cost after discounts.

Key Concepts

Cost Analysis

Cost analysis is an essential step to determine the total expenses associated with a purchase. This includes not just the initial purchase price but also additional costs like transportation and potential discounts. Let’s break down how to conduct an effective cost analysis.

• First, identify all potential costs involved. For example, Supplier A’s unit price is \(\\(375\), which leads to a total of \(\\)37,500\) for 100 units. However, you also need to add \(\\(1,050\) for transportation, making the total \(\\)38,550\).
• Next, factor in any discounts. Supplier A offers a 2% discount for early payment. Applying this discount reduces the product cost to \(\\(36,750\).
• Include transportation again to finalize the cost after discounts to \(\\)37,800\).

Understanding these components helps ensure that all expenses are accounted for, leading to a more comprehensive view of the overall cost.

Discount Calculations

Discount calculations can significantly affect the total purchase cost, providing an opportunity to save money. Let's delve into how to calculate and utilize them effectively.

• Identify the discount terms: Supplier A offers a 2% discount if the payment is made within 10 days. This discount is calculated only on the cost of the goods, not including transportation.
• To calculate the discount, multiply the purchase total by the discount percentage. For Supplier A, this means \(37,500 \times 0.02 = \\(750\).
• Subtract the discount from the total purchase amount, resulting in a discounted price of \(37,500 - 750 = \\)36,750\), before adding any additional transportation fees.

Taking advantage of discounts can lead to substantial savings, making them an essential factor when deciding between suppliers.

Supplier Comparison

A thorough supplier comparison involves evaluating not just the price per unit but the overall cost, including any additional expenses and savings through discounts.

• Compare the initial prices: Supplier A's unit price is lower at \(\\(375\) compared to Supplier B’s \(\\)380\).
• Consider other costs: Supplier A adds \(\\(1,050\) for transportation, whereas Supplier B charges nothing for it.
• Evaluate discount opportunities: Supplier A provides a 2% discount, whereas Supplier B offers 1%.
• Compare the final costs: After discounts and additional charges, Supplier A’s total is \(\\)37,800\) and Supplier B's total is \(\$37,620\).

Ultimately, a detailed comparison like this helps in making an informed decision, selecting Supplier B here as the cost-effective choice post-discount.