Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price. (Assume a 360-day year.)
-If the lead time for placing an order is 5 days, and Aberwald holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?
A) 15,570
B) 3,175
C) 12,250
D) 13,675
E) 8,124

Question

Quizplus · Accepted Answer

The reorder point is calculated as the daily usage rate multiplied by the lead time, plus the safety stock. Daily usage rate = 126,000 chips / 360 days = 350 chips/day. Reorder point = (350 chips/day * 5 days) + (350 chips/day * 30 days) = 12,250 chips.

Aberwald Corporation Expects to Order 126,000 Memory Chips for Inventory