Exhibit 28.2
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 28.2.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

The reorder point is calculated as the daily usage rate multiplied by the lead time, plus the safety stock. The daily usage rate is 126,000 chips / 360 days = 350 chips per day. The lead time is 5 days, so 350 chips/day * 5 days = 1,750 chips. The safety stock is a 30-day supply, so 350 chips/day * 30 days = 10,500 chips. Therefore, the reorder point is 1,750 + 10,500 = 12,250 chips.

Exhibit 28.2 Cartwright Computing Expects to Order 126,000 Memory Chips for Inventory