Petromax Enterprises uses a continous review inventory control system of one of its SKU's. The following information is available on the item. The firm operates 50 weeks in a year.
Demand = 50,000 units/year
Ordering cost = $35/order
Holding costs = $2/unit/year
Average lead time = 3 weeks
Standard deviation of weekly demand = 125 units
a. What is the economic order quantity for this item?
b. If Petromax wants to provide a 95 percent cycle-service level, what should be the safety stock and the reorder point?