A local service station is open 7 days per week, 365 days per year. Sales of 10W40 grade premium oil average 20 cans per day. Inventory holding costs are $0.50 per can per year. Ordering costs are $10 per order. Lead time is two weeks. Backorders are not practical—the motorist drives away.

a. Based on these data, choose the appropriate inventory model and calculate the economic order quantity and reorder point. Describe in a sentence how the plan would work. Hint: Assume demand is deterministic.

b. The boss is concerned about this model because demand really varies.

The standard deviation of demand was determined from a data sample to be 6.15 cans per day. The manager wants a 99.5 percent service probability. Determine a new inventory plan based on this information and the data in part (a). Use Qopt from part (a).

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