Consider an item that has an average demand rate that does not change with time. Suppose that demands in consecutive weeks can be considered as independent, normally distributed variables. Observations of total demand in each of 15 weeks are as follows:

89 102 107 146 155 64 78 122 78 119 76 80 60 115 86.

a. Estimate the mean and standard deviation of demand in a 1-week period and use these values to establish the reorder point of a continuously reviewed item with L = 1 week.

A B2 value of 0.3 is to be used, and we have Q = 1,000 units, v = $10/unit, r = 0.24 $/$/year, and D = 5,200 units/year.

b. In actual fact, the above-listed demands were randomly generated from a normal distribution with a mean of 100 units and a standard deviation of 30 units. With these true values, what is the appropriate value of the reorder point? What is the percentage cost penalty associated with using the result of part 6.5a instead?