Problem:
Hayes Electronics assumes with certainty that the ordering cost is $450 per order and the inventory carrying cost is $170 per unit per 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% lower 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, (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.