Question

A publisher estimates the annual demand for a book to be 8000 copies, and built a warehouse to accommodate at most 8000 copies. Each book costs $8 to print, and setup costs are $1000 for each printing run. Storage costs (based on the max inventory) are $2 per book per year.

What is the minimum total cost?

Answer 1

Answer: $1000

Explanation:

Annual demand (D) = 8000

Cost per order (S) = $1000

Cost per unit to print = $8 per book

Storage cost = $2 per book per year

The minimum total cost can be found thus :

√(2 × D × S) / storage cost * cost per unit

√(2 × 8000 × 1000) / (2 * 8)

√ (16,000,000 / 16

√ (1,000,000

= 1000

Hence , minimum total cost $1000