Roland provides custom-made coffee mugs, saucers, keychains, magnets, and other souvenirs sought after by tourists visiting the Eiffel Tower. It purchases plain coffee mugs from a wholesaler in Germany and customizes them to suit customer needs. The cost to place orders with the supplier is €45/order; and the inventory holding cost is €2/item/year. Since Roland is located near a tourist hub, demand is fairly consistent throughout the year and it averages 25 mugs per day, with a standard deviation of 2 mugs. The lead time from the supplier is 10 days, with a standard deviation of 3 days. The desired cycle-service level is 97 percent. Roland is open 340 days a year. The owners want to use a continuous review inventory system for mugs.
a. What order quantity should be used?
b. What reorder point should be used?
c. What is the total annual cost for this inventory system?