Purchases Discounts
Response to the following problem:
The Auge Company annually purchases 1,000 tons of raw material at a cost of $100,000 with terms of 2/10, n/30. Freight costs amount to $10,000 and storage and handling costs to $7,500.
Required
1. What is the correct inventory cost?
2. Explain whether your answer to Requirement 1 would change if the discount were not taken.
3. Would your answer to Requirement 1 change if the storage and handling costs were fixed costs and therefore not dependent on the volume of material stored?