A weekly sports magazine publishes a special edition for the World Series. The s

Question

A weekly sports magazine publishes a special edition for the World Series. The sales forecast is for the number of copies to be normally distributed with mean 500,000 copies and standard deviation 25,000 copies. It costs $.35 to print a copy, and the newsstand price is $1.95. Unsold copies can be sold to a recycling center for $.15 each. a.What is the per unit cost of overestimation? b.What is the per unit cost of underestimation? c. How many copies should the sports magazine print to minimize inventory costs? d.What's the probability they will have copies left over?

Explanation / Answer

a. Per unit cost of over estimation:

Printing cost      $ .35

from sales to recycling   $ .15

Net cost of over estimation per unit          $ .20

b. Per unit cost of under estimation

Revenue from one unit                          $ 1.95

Printing cost of one unit                          $ .35

Net cost of under estimation per unit       $ 1.60

c. Copies to be print to minimise inventory cost:

Average demand                 : 500,000

Standard deviation                    25.000

The bottom sale point             475,000

To minimise inventory cost print 475,000 unit ie the minimum number of copies that can be sold every month

d. Probability of copies left over

     25,000/500,000    =    .005

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