Minimum total cost of ordering and carrying inventory

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Reference no: EM13949381

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) 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?

(b) 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?

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Reference no: EM13949381

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