Campus Publishing prints textbooks written by faculty and distribute around the

Question

Campus Publishing prints textbooks written by faculty and distribute around the world. The Business English book is particularly popular and has annual sales of 100,000 copies per year. Printing each copy of the book costs $60. The author is encouraged to come up with revisions (i.e., new editions) to cater to consumer needs. Each revision will require $250,000 for a new typeset of the book. After a new edition is released, its sales value is discounted at a rate of $2 every 3 months. How frequently should new editions be published?

Explanation / Answer

We can think of this problem as a continuous review inventory model

The demand is uniform and constant, therefore EOQ model can be used to determine the optimal print run.

Annual sales, D = 100,000

Setup cost, K = $ 250,000

Holding cost, H = 2*4 = $ 8 per year (sales discount is analogous to holding cost)

Optimal print run, EOQ = (2*D*K/H) = (2*100000*250000/8) = 79056

Frequency of publishing = 79056/10000*12 = 9.5 months

New editions should be published roughly every 9.5 months

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