Loyd's Tech provides local firms with items such as pens and mugs printed with customized logos and designs. Demand for mugs is on average 91 per week. There is some variability in weekly demand; the standard deviation of demand is 18.2 mugs. It costs Loyd's $70 to place an order for mugs regardless of the number of mugs ordered. The supplier charges Loyds $1.60 per mug and has a two week lead time. The retail price of a mug with a customers design printed on it is $5.90. Loyds cost of capital is 12.5% per year. Pacos targets a cycle service level of 94%. Assume 52 weeks per year and that demand is normally distributed.

1. What order size and reorder point would you recommend?

2. What are Loyds total annual inventory related costs?