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Determining the Cost of a Purchase The following is an excerpt from a conversation between Mark Loomis and Krista Huff. Mark is debating whether to buy a stereo system from Tru-Sound Systems, a locally owned electronics store, or Wholesale Stereo, an online electronics company. Mark : Krista, I don’t know what to do about buying my new stereo. Krista : What’s the problem? Mark : Well, 1 can buy it locally at Tru-Sound Systems for $1,175.00. However, Wholesale Stereo has the same system listed for $1,200.00. Krista : What’s the big deal? Buy it from Tru-Sound Systems. Mark : It’s not quite that simple. Wholesale Stereo charges $49.99 for shipping and handling. If I have Wholesale Stereo send it next-day air, it’ll cost $89.99 for shipping and handling. Krista: So? Mark : But, that’s not all. Tru-Sound Systems will give an additional 2% discount if I pay cash. Otherwise, they will let me use my VISA, or I can pay it off in three monthly installments. In addition, if I buy it from Tru-Sound Systems, I have to pay 9% sales tax. I won’t have to pay sales tax if I buy it from Wholesale Stereo, since they are out of state. Krista : Anything else??? Mark : Well ... Wholesale Stereo says I have to charge it on my VISA. They don’t accept checks. Krista : I am not surprised. Many online stores don’t accept checks. Mark : I give up. What would you do? 1. Assuming that Wholesale Stereo doesn’t charge sales tax on the sale to Mark, which company is offering the best buy? 2. What might be some considerations other than price that influence Mark’s decision on where to buy the stereo system?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 7TIF
Textbook Problem
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Determining the Cost of a Purchase

The following is an excerpt from a conversation between Mark Loomis and Krista Huff. Mark is debating whether to buy a stereo system from Tru-Sound Systems, a locally owned electronics store, or Wholesale Stereo, an online electronics company.

Mark: Krista, I don’t know what to do about buying my new stereo.

Krista: What’s the problem?

Mark: Well, 1 can buy it locally at Tru-Sound Systems for $1,175.00. However, Wholesale Stereo has the same system listed for $1,200.00.

Krista: What’s the big deal? Buy it from Tru-Sound Systems.

Mark: It’s not quite that simple. Wholesale Stereo charges $49.99 for shipping and handling. If I have Wholesale Stereo send it next-day air, it’ll cost $89.99 for shipping and handling. Krista: So?

Mark: But, that’s not all. Tru-Sound Systems will give an additional 2% discount if I pay cash. Otherwise, they will let me use my VISA, or I can pay it off in three monthly installments. In addition, if I buy it from Tru-Sound Systems, I have to pay 9% sales tax. I won’t have to pay sales tax if I buy it from Wholesale Stereo, since they are out of state.

Krista: Anything else???

Mark: Well ... Wholesale Stereo says I have to charge it on my VISA. They don’t accept checks. Krista: I am not surprised. Many online stores don’t accept checks.

Mark: I give up. What would you do?

1.    Assuming that Wholesale Stereo doesn’t charge sales tax on the sale to Mark, which company is offering the best buy?

2.    What might be some considerations other than price that influence Mark’s decision on where to buy the stereo system?

1.

To determine

Identify the company which is offering the best buy.

Explanation of Solution

A purchase is an activity of acquiring the merchandise inventory of a business.

Calculate all the possibilities from Company W and Company T.

Company W (Possibility 1)

Calculate the price of stereo on normal delivery.

List price = $1,200

Shipping and handling = $49.99

  Price of stereo = List Price + Shipping and handling=$1,200+$49.99=$1,249.99

Company W (Possibility 2)

Calculate the price of stereo on special delivery (next day).

List price = $1,200

Shipping and handling = $89.99

  Price of stereo = List Price + Shipping and handling=$1,200+$89.99=$1,289.99

Company T (Possibility 3)

Calculate the price of stereo.

List price = $1,175

Sales tax = 9%

  Price of stereo = List Price + Sales tax=$1,175+9%=$1,280

2.

To determine

Mention the other considerations rather than price that influence Person M’s decision to buy the stereo.

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Chapter 5 Solutions

Financial And Managerial Accounting
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