Question: Rainbow Colors paint store uses a continuous review inventory system to control its stock levels. For a popular eggshell latex paint, historical data show that

 Rainbow Colors paint store uses a continuous review inventory system to

Rainbow Colors paint store uses a continuous review inventory system to control its stock levels. For a popular eggshell latex paint, historical data show that the distribution of monthly demand is approximately Normal, with mean 28 and standard deviation 8. Replenishment lead time for this paint is 2 months. Each can of paint costs the store $6. Fixed cost of replenishment is $15 per order and holding costs are based on a 30% annual interest rate. (1) What is the optimal lot size (economic order quantity) Q ? (2) What is the optimal reorder point (ROP) if Rainbow Colors wants to achieve a 90% cycle service level (i.e., Type I service level)

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