A gasoline mini-mart orders 25 copies of a monthly magazine. Depending on the co

Question

A gasoline mini-mart orders 25 copies of a monthly magazine. Depending on the cover story, demand for the magazine varies. The gasoline mini-mart purchases the magazines for $1.50 and sells them for $4.00. Any magazines left over at the end of the month are donated to hospitals and other health-care facilities. Modify the newsvendor example spreadsheet to model this situation. Investigate the financial implications of this policy if the demand is expected to vary between 10 and 30 copies each month. How many must be sold to at least break even?

Explanation / Answer

For breakeven, total profit = 0

Now on each magazine sold there is a profit of (4-1.5) = $2.5

For each of the magazine not sold, the loss would be $1.5

Let there be X magazines sold out of the 25 bought. Then number of unsold magazines = 25-X

Therefore for breakeven point we get:

2.5X - 1.5(25-X) = 0

2.5X - 37.5 + 1.5X =0

4X = 37.5

X = 37.5/4 = 9.375

Therefore at least 10 must be sold out of the 25 bought to at least reach a breakeven point.

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