Aberwald Corporation Expects to Order 126,000 Memory Chips for Inventory

question 19

Multiple Choice

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.)
-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?

• A) 9,216
• B) 3,175
• C) 6,243
• D) 13,675
• E) 8,124

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Definitions:

Machine Maintenance Labor

The labor costs associated with the regular care, repair, and upkeep of machinery to ensure it operates efficiently.

Direct Costs

Expenses that can be directly linked to the production of specific goods or services.

Indirect Costs

Costs that are not directly attributable to a specific cost object, such as overhead expenses.

Insurance Expired

Represents the portion of an insurance premium that has been used up during a given period, and therefore is no longer in effect.