Roland provides custom-made coffee mugs, saucers, keychains, magnets, and other souvenirs sought after by tourists visiting the Eiffel Tower. It purchases plain coffee mugs from a wholesaler in Germany and customizes them to suit customer needs. The cost to place orders with the supplier is 45/order; and the inventory holding cost is 2/item/year. Since Roland is located near a tourist hub, demand is fairly consis- tent throughout the year and it averages 25 mugs per day, with a standard deviation of 2 mugs. The lead time from the supplier is 10 days, with a standard deviation of 3 days. The desired cycle-service level is 97 percent. Roland is open 340 days a year. The owners want to use a continuous review inventory system for mugs.

What order quantity should be used?

What reorder point should be used?

What is the total annual cost for this inventory system?