1. The annual mean demand for a certain kitchen-table at Smart Home (SH) is 12,000 units. Ordering cost per order is $50, holding rate is 22%, and unit cost is $500. To apply the EOQ model with service level, demand data were collected daily. The daily demand is normally distributed, with a mean of 40 units and a standard deviation of 18 units. The lead time is 3 days. Each question below is independent of any other question.

1. If the cycle service level required is 95%, what is the reorder point for a lead time of 3 days?

a. 12000*(3/365)

2. Based on the daily normal distribution, the reorder point for the daily demand is 69.6. Thus, the reorder point for the 3-day lead time =3*69.6
3. 172 (rounded up)
4. 209 (rounded up)
   2. If SH limits the amount spent on holding safety stock to not more than 2800 dollars, what service level can be achieved? Lead time is still 3 days.
      1. With the funds made available the safety stock is 25 tables (when rounded down). So, in each cycle we can sell 25 units more than the average demand per cycle. The cycle average demand is the same as the order size = 104.45. Therefore, the service level = 104.45/(104.45+25) .
      2. The service level = (3*40)*(500/2800).
      3. With the funds available the Service Level achieved is between 75% and 80%.
      4. None of the above