Cartwright Computing expects to order 600,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $30; and the firm’s inventory carrying costs is equal to 15 percent of the purchase price. (Assume a 360-day year.)
a. What is the economic ordering quantity for chips?
b. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?
c. Assume that Cartwright holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that will have on hand at any time, that is, what will be the inventory level right after a delivery is made?
d. How many orders should Cartwright place during the year?
e. 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?
f. If Cartwright holds a safety stock equal to a 30-day supply of chips, what is Cartwright’s minimum cost of ordering and carrying inventory?