An item in a warehouse seems to sell quite slowly—only 20 units per year. However, it is an expensive item, valued at $750. Assume that the variance of the lead time demand is roughly equal to the mean, so a Poisson distribution adequately describes the lead time demand. The following data may be relevant:

A = $7 r = 0.22$/$/year B2 = 2 L = 1 week (assume a 50 week year)

a. What (s, Q) policy should be used?

b. Now assume that A = $16. What is the new (s, Q) policy?