How does inventory level depend on service level?

Question

(i) How does inventory level depend on service level?                                                       

(ii) 4000 spare parts are required annually. A set-up cost of Rs 100 and a carrying cost of 25% per year is charged on the item cost of Rs 320. The production facility is open for 5 days per week and 50 weeks per year. The lead time of this product is 9 days and the standard deviation of the demand is 2 units per day. The company wants to have a 95% service level for this space parts.

1. If the company were using continuous review system (Q-system) of inventory control, compute the order quantity and reorder level. Interpret the result.
2. If the company were using continuous review system (Q-system) of inventory control, give the specific decision rule.