Question

PARTI: The Problem Statement The Associated Students of Foothill College has decided to try publishing books as a way to make money for the college. A former professor of the college, Jane Erstwhile, has just written a new book, "Living in the Shadow of Jane Austen". Ms. Erstwhile plans to sell an average of 100,000 books each month in the next year. You have been given the job of scheduling print runs to meet the anticipated demand while also minimizing total cost to the college. You have identified the following costs associated with printing the books: A) Setup Costs: Each print run costs $5,000 B) Production Costs: Each book costs $1 to produce C) Storage Costs: Monthly storage costs for books awaiting shipment average 1€ per book. If you decide to print all 1,200,000 books (the total for the year, 100,000 books per month for 12 months) in a single run at the start of the year and sales run as predicted, then the number of books in stock would begin at 1,200,00 and decrease to zero by the end of the year, as shown in the graph below. Books in stock 1,200,000 1,000,000 800,000 600,000 400,000 200,000 Average number in stock 0 1 2 3 4 5 8 9 10 11 12 6 7 Month On average the college will be storing 600,00 books for 12 months at 1¢ per book giving a total storage cost of, Storage Costs = 600,000 X 12 X 0.01 = $72,000

Answer 1

Information given in the question:

Average Sale – 100,000 books per month

Set-up Costs - $5,000 for each print run

Production costs - $1.00 per book

Storage costs - $0.01 per book

Calculation of costs for printing the books in 2 print runs of 600,000 books each:

Set-up Costs – $5,000 x 2 = $10,000

Production costs = 1,200,000 units x $1.00 = $1,200,000

Storage costs:

As shown in the diagram, the average inventory of books in stock will be 300,000 books for 6 months.

Therefore, Storage costs = (300,000 units x 6 months x $0.01 per book) x 2 = $36,000.

Total Costs = Set-up costs + Production costs + Storage costs

                     = $10,000 + $1,200,000            + $36,000

                     = $1,246,000

1. Set-up costs for two print runs is $10,000

2. Production cost is $1,200,000

3. Storage costs is $36,000

D. Total cost for the year is $1,246,000

Answer 2

To cut down on storage costs you will print the book in two print runs of 600,000 each