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.)
1. What is the economic ordering quantity for chips?
2. If Aberwald holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?
3. 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?
4. How many orders should Aberwald place during the year?
5. 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?
6. If Aberwald holds a safety stock equal to a 30-day supply of chips, what is Aberwald's minimum cost of ordering and carrying inventory?