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Gentle Ben's bar and restaurant uses 5000 quart bottles of an imported win each year. The effervescent wine cost$3 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $10 each time an order is placed and holding costs are 20 percent of the purchase price. It takes three weeks for an order to arrive. Weekly demand is 100 bottles (closed two weeks per year) with the standard deviation of 30 bottles.
Ben would like to use an inventory system that minimizes inventory cost and will provide a 95 percent service probability.
a. What is the economic order quantity for Ben to order?
b. At what inventory level should he place an order?
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