The local Wal-Mart Store sells party hats to consumers. The department manager of party supplies has analyzed the point of sale data to find that the daily demand for the party hats is normally distributed with mean 40 and standard deviation 13.
a. Suppose the manger places replenishment orders to the Wal-Mart distribution center only once a week. What is the weekly demand for party hats?
b. How many party hats should be there on the shelf at the beginning of a week to achieve a 95% service level for the week? Assume that no additional receipts of hats are scheduled for the week.
c. What is the expected lost sale during a week if the local Wal-Mart has 245 party hats on the shelf at the beginning of the week? Assume that no additional receipts of hats are scheduled for the week.