Aberwald Corporation expects to order 126,000 memory chips for inventory during

Question

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 $175 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.)

(a) What is the economic ordering quantity for chips?

(b) If Aberwald holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?

(c) Assume that Aberwald holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that Aberwald will have on hand at any time, that is, what will be the inventory level right after a delivery is made?

(d) How many orders should Aberwald place during the year?

(e) 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?

(f) If Aberwald holds a safety stock equal to a 30-day supply of chips, what is Aberwald's minimum total cost of ordering and carrying inventory?

Please show all work step by step

Explanation / Answer

A. What is the economic ordering quantity for chips?

EOQ= SQRT ((2AO)/C) = SQRT ((2*126,000*175)/5) = 2,970
A= Annual demand
O= ordering cost per order
C= Carrying cost per unit
EOQ= 2970

Economic ordering quantity for chips = 2,970

b)

If Cartwright holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?

Average inventory level = (2,970/2) +30*350                     (126000/360 = 350)

1,485 + 10,500 = 11,985=11,985 Average inventory

c)

Assume that Aberwald holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that Aberwald will have on hand at any time, i.e., what will be the inventory level right after a delivery is made?

Maximum inventory level = EOQ + Safety stock = 2,970 + 10,500 =13,470

d)

How many orders should Aberwald place during the year?

Number of orders = (126,000/2970) = 42.42 Orders per year

Note: According to chegg guidelines only 4 subparts can be answered at a time. Please post it as another question to get the remaining answer...Thank you..

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