1. The Milling Corp. has developed a new type of widget. The local distributor expects to increase his sales by 20% over the past year due to this new development. Last year's sales were $50,000 at a selling price of $100 per unit. The manager would like to cut costs as much as possible and comes to you for advice. (5 points) Relevant cost information includes:

Warehouse space	$.50/unit
Material handling expense	$1.50/unit
Insurance premium	$1.00/unit
Total ordering cost	$100.00/per order

1. What is the economic order quantity?
2. What is the amount of average inventory?
3. How many orders will be made per year?
4. What is the total cost of this inventory decision?

Mountain Home Systems, Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The firm is currently debating whether to expand its sales to car-telephone manufacturers. While the firm expects an extra $2 million in sales if it enters this market, it also knows that 15% of its sales will ultimately be uncollectible. In addition, collection costs will be 2% on all new sales and the firm's production costs are 72% of sales. Selling expenses are 8% of sales and Mountain Home has an opportunity cost of funds (before tax) of 20%. Mountain Home can turn its receivables 4 times per year. Should Mountain Home Systems Co. enter the car telephone manufacturer market? (7 points)