Question
AV City assumed with certainty that the ordering cost is $625/order and the inventory carrying cost is $130/unit/year. However, the inventory model parameters are frequently
AV City assumed with certainty that the ordering cost is $625/order and the inventory
carrying cost is $130/unit/year. However, the inventory model parameters are frequently only estimates that
are subject to some degree of uncertainty. Consider four cases of variation in the model parameters as follows:
(a) Both ordering cost and carrying cost are 10% less than originally estimated; (b) both ordering cost and
carrying cost are 10% higher than originally estimated; (c) ordering cost is 10% higher and carrying cost is
10% lower than originally estimated; and (d) ordering cost is 10% lower and carrying cost is 10% higher than
originally estimated. Determine the optimal order quantity and total inventory cost for each of the four cases.
Prepare a table with values from all four cases and compare the sensitivity of the model solution with changes
in parameter values
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