Gregg is the marketing manager for the Aerocon Company, which manufactures a line of air conditioners. There are about 20 different models; however, over 70 percent of the subassemblies are common to all models. Therefore, the company is in a MTO (manufacture to order) mode; they assemble the final product only when they get an order. To expedite the final assembly, they stock the common subassemblies. Gregg is responsible for the subassemblies inventory, and he decided to manage it using the continuous review approach. The weekly demand for fan subassembly is normally distributed with N (500, 2500). Gregg knows his ordering cost to be $300. Production cost of this subassembly is $40.00, and production lead time is two weeks. Inventory holding cost is 20 percent annually; shortages are backlogged at a penalty of $2.00 per unit.

a) Find the average number of fan subassemblies if inventory were to be managed by the managerial approach

b) Find the service level for policy 1 and policy 2