Chapter 13, Problem 2P

AV City (Problem 13.1) 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 to changes in parameter values.