Reference no: EM132966018

The mechanical engineer at Robinson Manufacturing has developed a new gearbox. The local distributor expects to increase his sales by 30% over the past year due to this new development. Last year's sales were $70,000 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.

Relevant cost information includes:

Warehouse space $3.00/unit
Material handling expense $2.00/unit
Insurance premium $1.00/unit
Total ordering cost $150.00/per order

Problem 1: What is the economic order quantity?

Problem 2: What is the amount of average inventory?

Problem 3: How many orders will be made per year? Round to 2 decimal places.

Problem 4: What is the total cost of this inventory decision?

Problem 5: What would be the advantage and disadvantage if the company decided to carry safety stock? Explain your answer in sentence form. Calculations are not required.