A manufacturing entity would like to establish its optimal order strategy for chemicals used in its manufacturing processes. The following information is presented.

Estimated cost of ordering and receiving inventory (per order)	$1,500
Estimated annual cost of carrying inventory (per bag)	$2
Estimated annual usage (purchased in 20 kg bags)	3,000,000 kg
Lead time per order	3 weeks
Annual manufacturing operating time	50 weeks
Maximum weekly usage	3,500 bags

1. By calculating the economic order quantity, safety stock and reorder point, indicate the most economical order size and the point at which an order should be placed. Your answers should be presented using the number of bags as the unit of reporting.

2. Explain the meaning of the economic order quantity. Why would entities hold safety stock beyond the value determined by the economic order quantity?