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

---

Definitions:

Manufacturing Overhead Cost

Indirect costs related to manufacturing that cannot be traced directly to individual products, such as maintenance and factory manager salaries.

Produced Units

The total number of items manufactured by a company during a specific period.

Variable Cost Per Unit

The cost that varies with the production volume, calculated per unit of product.

Sold Units

The quantity of items or products sold by a company or retailer within a specific period.