Question 4: [26 points] Report four digits after the decimal for probability-related values. Report two digits after the decimal for quantity-related values. Big Top Pub serves craft beers from microbrewers nationwide as well as snack foods. The manager buys a particular sour beer from a brewing company in Maine that requires three weeks for delivery. The sour beer costs $1 a bottle and may be purchased in any quantity. The fixed ordering cost is $70, and inventory holding costs are calculated using an annual inventory carrying rate of 22 percent. Based on historical data, the weekly demand for the sour beer is normally distributed with a mean of 120 bottles and a standard deviation of 40 bottles. The Big Top Pub manager currently has a policy to place a replenishment order when there is 4-weeks’ supply left. Each order consists of 6-weeks of supply. For the purposes of your calculations, you may assume that there are 48 weeks in a year and that all excess demand is fully backlogged. A. [6 points] What are the reorder level and order quantity currently used at Big Top Pub for the sour beer? B. [10 points] What is the proportion of demand that cannot be satisfied immediately from stock under the current policy? C. [10 points] What reorder level and order quantity should the manager use if she wishes to ensure that the probability of not stocking out during the lead time is 95 percent?
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