A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specific refrigerator in its product line:

Cost to place an order.............$ 100

Holding cost............... 20 percent of product cost per year

Cost of refrigerator .............$ 500

Annual demand ..............500 refrigerators

Standard deviation of demand during lead time..10 refrigerators

Lead time each ...............7 days

Consider an even daily demand and a 365- day year.

a. What is the economic order quantity?

b. If the distributor wants a 97 percent service probability, what reorder point, R, should be used?