Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a Normal distribution with a mean of 7 gallons per day and a standard deviation of 0.7 gallons per day. The new manager desires a service level of 90 percent. Lead time is two days, and the dairy is open seven days a week. Assume that holding cost is $1 per gallon per day and a fixed cost of $10 is incurred per order. Answer the following questions assuming the dairy is operated using a continuous review policy.
A. What reorder point would be consistent with the desired service level?
B. What is the dairy manager’s optimum order quantity?
C. Calculate Sweet Cream Dairy’s daily average inventory
D. How many days of supply are on hand?