Question 2 The manager of a car wash has received a revised price list from the vendor of the liquid soap, and a promise of a shorter lead time for deliveries. Formerly the lead time was four days, but now the vendor promises a reduction of 25 percent in that time (i.e., new lead time is three days). Annual usage of soap is 4,500 litres. The car wash is open 360 days a year. Assume that daily usage of soap is Normal distributed, and that it has a standard deviation of two litres per day. The ordering cost is $10 per order and annual holding cost rate is 40 percent of unit cost. The revised price list is shown below. 1) What order quantity is optimal? 2) What ROP is appropriate if the acceptable risk of a stockout is 1.5 percent (z=2.17) ? 3) The manager changes his order policy to fixed order interval. He plans to place an order every 30 days. How much should he order if he has 30 units on hand now. The acceptable risk is the same as part 2). Tips: do not forget the safety stock. Question 3 The owner of a health food store has decided to intentionally allow shortage of a food supplement. The annual demand is 500 bottles, the ordering cost is $10 per order, and the holding cost is $1 per bottle per year. Cost of back-ordering one bottle is estimated to be $10 per bottle per year. 1) What should be the order quantity? 2) How many bottles should be short per order cycle