Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a normal distribution with a mean of 21 gallons per week and a standard deviation of 3.5 gallons per week. The new manager desires a service level of 90 percent. Lead time is two days, and the dairy is open seven days a week. (Hint: Work in terms of weeks.)
(a) If a fixed-interval model is used, what order size would be needed for the 90 percent service level with an order interval of 10 days and a supply of 8 gallons on hand at the order time?
Extra Credit
A grocery shop that makes candles offers a scented candle, which can be produced at a rate of 36 boxes per day and used 12 boxes per day. Assume that demand is uniform throughout the year and the shop opens for 360 days. Setup cost is $80 for a run, and holding cost is $2 per box on a yearly basis. Please compute the following tasks using EPQ model:
(a) The economic run size
(b) The maximum inventory
(c) The total cost