Waterville Mercantile has a new product Hot Coco Togo that they need to set an inventory policy for. The fixed shipping cost for whenever Waterville Mercantile places an order, is $150. This shipping cost is not dependent on the order size. The annual holding cost for the Hot Coco Togo for Waterville Mercantile is $0.20 per unit per year. Demand is normally distributed, with an average daily demand of 20 units. Standard deviation of daily demand is 5 units. It is also assumed that there are 365 weeks in a year, 7 days in a week, and Waterville Mercantile is open 365 days a year.

1. How many units per order should Waterville Mercantile have if the lead time is exactly 1.5 weeks and management wants a 96.5% cycle service level? When should they place an order?
2. How many units per order should Waterville Mercantile have if the lead time has a mean of 1.5 weeks, but with a standard deviation of 0.8 weeks. Assume cycle service level is the same as in part A. Also, when should they place an order?
3. Which situation has higher inventory holding costs - part a or part b? Why? (1 point)