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2. It appears to you that increasing the number of print runs reduces total costs for the year. Motivated by this idea, you decide to divide the 1,200,000 books into a twelve-monthly production runs of 100,000 books each. A) Create a graph similar to the one in Problem #1 of this exam. Use graph paper and include the graph for your work in this part (You can glue the graph to your exam paper if necessary). Label both axes as in the graph above (you will have to modify the y-axis values for this part but should use the same x-scale). B) What are the setup costs for twelve (monthly) print runs? C) What are the production costs? D) What are the storage costs? E) Fill in the amounts from your work above and compute the total costs for the year: C = (Setup Costs) + (Production Costs) + (Storage Costs) Remark You should have gotten a total yearly cost of more than $1,260,000 above, which is more than the total yearly costs for two print runs. So increasing the number of print runs to twelve has resulted in more total cost than for two print runs. So the question is, do minimum costs result with two print runs or can we do better?
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.
Books in stock 1,200,000 1,000,000 800,000 Average number in stock 600,000 400,000 200,000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 Month
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