1. Compute the order point. Units per day = Days = Safety stock = 200 5 500 Order point = 1,500 units 2. Determine the most economical oder quantity by use of formula. EOQ = square root of (2CN/K) where: C= $50 N= 25,000 K= $0.10 EOQ = 5,000 units 3. Calculate the total cost of ordering and carrying at EOQ. $ Annual usage = Units per order = Number of orders = Ordering cost = Safety stock = Average number of units in inventory = Carrying cost per unit = Carrying cost = Total cost = 25,000 units 5,000 units 5 orders 250 500 units units 0.10 $ $ P2-1 Economic order quantity; ordering and carrying costs Perry Co. predicts it will use 25,000 units of material during the year. The expected daily usage is 200 units, and there is an expected lead time of five days and a desired safety stock of 500 units. The material is expected to cost $5 per unit. Perry antici- pates it will cost $50 to place each order. The annual carrying cost is $.10 per unit. S