CheapBuy is an electronics retail chain selling Gatewaynetbooks. The demand for the Gateway netbook LT20 at their localstore is normally distributed with a mean of 38 netbooks/week andstandard deviation of 6 netbooks/week. CheapBuy orders netbooksfrom Gateway at unit cost of $220. The annual cost of carryinginventory at the store is 5% of the purchase cost per unit peryear. It takes 2 weeks to receive a delivery. Each time CheapBuyplaces an order it incurs a fixed cost of $100. The storecontinuously reviews its inventory and orders when inventory fallsbelow its reorder point. (Do NOT round numbers, especiallyinventory, to integer. Round numbers to 2nd decimal place.)
a. Compute the safety stock (number of netbooks) needed tomaintain a service level of 95%.
b. What is the average demand during lead time?
c. What is the reorder point?
d. What is the optimal order quantity (Assuming 52 weeks ayear)? How much additional safety stock would be needed if CheapBuywishes to increase the service level at their local store from 95%to 98%?
