Ollamh’s Organic Pet Shop sells bags of cedar chips for pet bedding or snacking (buyer’s choice). The supplier has offered Ollamh the following terms: Order 1–100 bags, and the price is $6.00 a bag. Order 101 or more bags, and the price is $4.50 a bag. Annual demand is 630, fixed ordering costs are $9 per order, and the per-bag holding cost is estimated to be around $2 per year.

a. (*) What is the economic order quantity for the bags?

b. (**) What order quantity should Ollamh order, based on the volume discount? Is this different from the EOQ? If so, how could this be?

 c. (**) Suppose the lead time for bags is a constant 2 weeks, and average weekly demand is 12.6 bags, with a standard deviation of 3.2 bags. If Ollamh wants to maintain a 98% service level, what should her reorder point be?

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