Business Calculus
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.
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
Recalling that the setup cost for the single print run is $5,000, the cost of producing 1,200,000 books at $1 each is $1,200,00, the total cost for the year would be given
by,
C = (Setup Costs) + (Production Costs) + (Storage Costs)
= $5000 + $1,200,000 + $72,000
= $1,277,000
A) What are the setup costs for two print runs?
B) What are the production costs?
C) What are the storage costs?
D) What is the total cost for the year?