AV City (Problem 13-1) assumed with certainty that the or-dering cost is $625/order and the inventory carrying cost is $130/unit/year. However, the inventory model parametersare frequently only estimates that are subject to somedegree of uncertainty. Consider four cases of variation inthe model parameters as follows: (a) Both ordering costand carrying cost are 10% less than originally estimated;(b) both ordering cost and carrying cost are 10% higherthan originally estimated; (c) ordering cost is 10% higherand 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 opti-mal order quantity and total inventory cost for each of the four cases. Prepare a table with values from all four casesand compare the sensitivity of the model solution tochanges in parameter values.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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AV City (Problem 13-1) assumed with certainty that the or-
dering 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 opti-
mal 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.

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