Optimal Order Quantity Assignment
AV City stocks and sells a particular brand of laptop. AV City assumed with certainty that the ordering cost is $700/order and the inventory carrying cost is $150/unit/year. The store manager estimates that the total annual demand for the laptops will be 1,400 units, with a constant demand rate throughout the year. Orders are received within minutes after placement from a local warehouse maintained by the manufacturer. The store policy is never to have stockouts of the laptops. The store is open for business every day of the year except Christmas Day. 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 25% less than originally estimated; (b) both ordering cost and carrying cost are 25% higher than originally estimated; (c) ordering cost is 25% higher and carrying cost is 25% lower than originally estimated, and (d) ordering cost is 25% lower and carrying cost is 25% 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. (Round answers to 2 decimal places, e.g. 52.75.)
| Case | Optimal Quantity | Total cost | |||
| a. |  |
$ |
|||
| b. | |
$ |
|||
| c. | |
$ |
|||
| d. | |
$ |
.
