The Milling Corp. has developed a new type of widget. The local distributor expects to increase his sales by 25% over the past year due to this new development. Last year's sales were $180,000 at a selling price of $115 per unit. A safety stock of 50 units has eliminated stock outs. The manager would like to cut costs as much as possible and comes to you for advice.
Warehouse Space $3.50 per unit
Material handling $1.50 per unit
Insurance Premium $1.50 per unit
Total Ordering Cost $100 per order
a) What is the economic order quantity?
b) What is the amount of average inventory?
c) How many orders will be made per year?
d) What is the total cost of this inventory decision?