Question $1(50$ points$)$

A distributor of large appliances needs to determine a reorder point ordering inventory management policy. The

following data refer to a specific refrigerator in its product line:

Fixed cost to place an order

$$100$

Holding cost

$$80$ per refrigerator per year

Cost of one refrigerator

$$500$

Selling price of one refrigerator

$$2000$

Annual demand

$500$ refrigerators

Lead time

$7$ days

Std$.$ dev. of demand during the lead

time

$10$ refrigerators

Consider an even demand pattern and a $365-$day year.

$[$OPTIONAL$,$ this is from Hw$4]$ What is the economic order quantity $($EOQ$)$ for this product?

If the distributor wants a service level of $97\%,$ what reorder point should be used?

If the distributor wants to use the newsvendor approach for each order period $($considering overage and

underage costs only$),$ what reorder point should be used?