A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specifi c refrigerator in its product line:

Cost to place an order Holding cost Cost of refrigerator Annual demand Standard deviation during lead time Lead time

$100 20 percent of product cost per year

$500 each 500 refrigerators 10 refrigerators 7 days Consider an even daily demand and a 365-day year.

a. What is the economic order quantity?

b. If the distributor wants a 97 percent service probability, what reorder point, R , should be used?