Aberwald Corporation
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 cost is equal to 20 percent of the purchase price. (Assume a 360-day year.)
-Refer to Aberwald Corporation.If Aberwald holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?

Question

Quizplus · Accepted Answer

Average inventory level = (EOQ/2) + safety stockEOQ = sqrt((2*D*O)/H) = sqrt((2*126,000*200)/0.2*25) = 12,000Safety stock = (30/360)*126,000 = 1,050Average inventory level = (12,000/2) + 1,050 = 6,000 + 1,050 = 7,050

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