Marion Corp has developed a new type of widget The local dis

Marion 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. A safety stock of 23 units has eliminated stockouts. The manager would like to cut costs as much as possible and comes to you for advice. What is the economic order quantity?

        

Warehouse space

$2.50/unit

Material Handling Expense

$1.50/unit

Insurance Premium

$1.00/unit

Total ordering cost

$100.00/per order

A.

100 Units

B.

155 units

C.

165 Units

D.

135 Units

Marion 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. A safety stock of 23 units has eliminated stockouts. The manager would like to cut costs as much as possible and comes to you for advice. How many orders will be made per year?

        

Warehouse space

$2.50/unit

Material Handling Expense

$1.50/unit

Insurance Premium

$1.00/unit

Total ordering cost

$100.00/per order

A.

3.87 rounded 4

B.

5.2 rounded 6

C.

2.92 rounded 3

D.

6.72 rounded 7

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

Solution

Local distributor 20% Sales Increase Last year sales 50000 Per unit 100 Sales Quantity 500 Average annual usage of new widget 500*120% 600 Ordering cost per order $100 per order Annual carrying cost 2.50+1.50+1 5 Economic order quantity Sqrt(2DS/H) Sqrt(2*100*600)/5 155 Orders per year would be 600/155 3.870968 3.87 rounded 4