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Chapter 11Problem #5: Ollah’s Organic Pet Shop sells about 4,000 bags of free-range dog biscuits every year. The fixed ordering cost is $15, and the cost of holding a bag in inventory for a year is $2.a.What is the economic order quantity for the biscuits?b.Suppose Ollah decides to order 200 bags at a time. What would the total ordering and holding costs for the year be? (For this problem, don’t consider safety stock when calculating holding costs.)
c.Average weekly demand for free-range dog biscuits is 80 bags per week, with standard deviation of 16 bags. Ollah uses a continuous inventory review system to manage inventory of the biscuits. Ollah wants to set the reorder point high enough that there is only 5% chance of running out before the next order comes in. Assuming that the lead time is constant 2 weeks, what should the reorder point be?