ANSWER $(8$ POINTS$)$:

a$.$ Suppose that the fixed cost of a purchase order for one

SKU is $$3\mathrm{.}50$ and the variable cost of each additional

line item $($SKU$)$ is $$0\mathrm{.}50.$ Also, suppose that holding

cost rate is $20$ percent of unit cost per year. Determine

the optimal order interval.

b$.$ The forecast demand for Item #$0378422CA$ is $138$

units per week for the next few weeks and the standard

deviation of demand is estimated to be $37$ units per

week. Currently there are $555$ units on hand in the

warehouse and none are on order. The service level for

this SKU is desired to be $98\mathrm{.}5$ percent. Calculate the

$I_{\text{m}\text{a}\text{x}}($order up to level$)$ for this battery, and determine

the quantity to order.