Exhibit 23.2
Cartwright Computing 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.)
-Refer to Exhibit 23.2.If the lead time for placing an order is 5 days,and Cartwright 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

First, we need to calculate the annual demand for memory chips:

Annual demand = 126,000

Next, we need to calculate the daily demand:

Daily demand = annual demand / number of working days in a year 
= 126,000 / 360 
= 350

With a 30-day safety stock, the reorder point can be calculated as follows:

Reorder point = daily demand x lead time + safety stock 
= 350 x 5 + 30 x 350 
= 12,250

Therefore, an order should be placed when the inventory level reaches 12,250 chips.

Exhibit 23.2 Cartwright Computing Expects to Order 126,000 Memory Chips for Inventory