P15–5 EOQ analysis Tiger Corporation purchases 1,200,000 units per year of one component.
The fixed cost per order is $25. The annual carrying cost of the item is 27% of its $2 cost.
a. Determine the EOQ if (1) the conditions stated above hold, (2) the order cost is zero rather than $25, and (3) the order cost is $25 but the carrying cost is $0.01.
b. What do your answers illustrate about the EOQ model? Explain.