Ticos Inc. sells high quality Costa Rican coffee beans to local cafes. The company sells each bag of coffee beans for $28 and it costs Ticos Inc. $11 to produce each bag from Costa Rica. Ticos Inc. imports the coffee beans in batches of 2500 bags due to the high fixed costs of importing coffee. Demand for the bags of coffee beans is estimated to be normally distributed with a mean of 800 per month and standard deviation of 300. Ticos Inc. calculates holding costs using an annual rate of 22%.
a.)What cycle service level should Ticos Inc. provide if cafes will wait to receive a bag of coffee when Ticos Inc. runs out in exchange for a 10% discount on the price the cafe pays for the bag?
b.)What cycle service level should Ticos Inc. provide if cafes will NOT wait to receive a bag of coffee and instead any stock outs result in a lost sale for Ticos Inc.?