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Question 3 A big auto parts distributor imports brake pads from a supplier in Mexico. The monthly demand is slable and is 10,000 units per month. A box costs $20 including shipping but placing an order costs $500. The holding cost is $4 per box per year. The distributor can also manufacture the pads in her warehouse very easily - up to 20,000 units per month. The manufacturing cost per box is $12 and the inventory holding cost is $2.5 per box per year. Production setup cost is $100 per production run. Currently, the warehouse has the capacity to accommodate a maximum of 10,000 units in the inventory; however, the warehouse can easily extend this capacity to 40,000 units (by leasing another warehouse) at a cost of $1200 per year. Propose the most economical recommendation with justification