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 $60,000 at a selling price of $100 per unit. A safety stock of 25 units has eliminated stock outs. The manager would like to cut costs as much as possible and comes to you for advice.

a) What is the economic order quantity?

b) What is the amount of average inventory?

c) How many orders will be placed per year?

d) What is the total cost of this inventory decision?

Warehouse space Material Handling Expense Insurance Premium Total ordering cost $2.50/unit $1.50/unit $1.00/unit $100.00/per order