Erica Rendall is the editor-in-chief of her school’s yearbook. The school has 1,500 students and 60 faculty and staff members. The firm engaged to print copies of the yearbook charges the school $17 per book and requires a 10-day lead time for delivery. Erica and her editors plan to order 1,250 copies to sell at the school fair for $25 each.
a. If the school sells 1,150 yearbooks, what amount of profit will it earn? What is the cost of waste due to excess inventory?
b. If 150 buyers are turned away after all yearbooks have been sold, what amount of profit will the school earn? What amount of opportunity cost will the school incur?
c. How could Erica use a JIT inventory system to maximize profits by eliminating waste and opportunity cost?