Calculate overage cost Co: The cost of ordering one more unit than what you would have ordered had you known demand. In this case it is the cost of putting one "extra" cunit on the pile: O This is simply the carrying cost of one cunit 0 o To estimate, obtain the average length of the winter freeze from Exhibit 2. This should be 144.8 The estimated carrying cost is the ratio of the freeze to the year multiplied by the internal cost of funds multiplied by the cost of getting and using a cunit from the pile x 20% x ($23+$8+$2) = $2.62 144.8 365 Calculate the critical ratio (service level): Cu/(Co + Cu) Obtain the one-tailed z-statistic for the critical ratio (service level) The best size for the block pile is therefore: Average Cunits per Year + Z statistic x Standard Deviation of Cunits per Year Variable cutting cost per cunit: $23 Shipping cost to the mill: $8 Handling cost onto and off of the pile: $2 Internal cost of funds (holding cost): Salvage value of a cunit: Cost to obtain a cunit from local farmers: 20% $0 $65