Question

Hi Tech Corporation (HTC) expects to order 295,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $275 per order; the purchase price per chip is $32; and the firm’s inventory carrying costs is equal to 18 percent of the purchase price. What is the economic ordering quantity for chips? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Using the data from problem 11, HTC is able to negotiate a reduction in the fixed ordering costs

to $250.00 per order, but HTC decides to carry a safety stock of 35 days of memory chip sales.

With the reduced fixed ordering cost and the increased average inventory due to the safety stock

carried, what is the additional total inventory costs due to the decision to balance out uncertainty by

carrying the specified safety stock? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

Answer: 5307.4

Explanation :

total demand = 295,000 memory chips

ordering cost = $275 per order

inventory carrying rate = 18%

item cost = $32

Economic order quantity = (2 x total demand x ordering cost) (inventory carrying rate x item cost) (2 x 295,000 x $275) (18%x $32) ($162,250,000) 5.76 = /28,168,402.78 = 5307.391335

The economic order quantity is 5307.4