Palin’s Muffler Shop has one standard muffler that fits a large variety of cars. The shop wishes to establish a periodic review system to manage inventory of this standard muffler. Use the information in the following table to determine the optimal inventory target level ( or order- up- to level).

a. What is the optimal target level (order- up- to level)?

b. If the service probability requirement is 95 percent, the optimal target level [ your answer in part ( a)] will ( select one):

I. Increase.

II. Decrease.

III. Stay the same.

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Annual demand Standard deviation of daily demand Item cost Annual holding cost Review period 3,000 mufflers 6 mufflers per working day $30 per muffler 25% of item value 15 working days Ordering cost Service probability 90% Lead time Working days $50 per order 2 working days 300 per year