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?

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

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