Economic order quantity; ordering and carrying costs
Namath 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. Namath anticipates it will cost $50 to place each order. The annual carrying cost is $0.10 per unit.
Required:
1. Compute the order point.
2. Determine the most economical order quantity by use of the formula.
3. Calculate the total cost of ordering and carrying at the EOQ point.