Problem

William Company owns and operates a nationwide chain of movie theaters. The 500 properti...

William Company owns and operates a nationwide chain of movie theaters. The 500 properties in the William chain vary from low-volume, small-town, single-screen theaters to high-volume, big-city, multiscreen theaters.

The management is considering installing machines that will make popcorn on the premises. These machines would allow the theaters to sell freshly popped popcorn rather than prepopped corn that is currently purchased in large bags. This new feature would be advertised and is intended to increase patronage at the company’s theaters.

Annual rental costs and operating costs vary with the size of the machines. The machine capacities and costs are as follows:

Economy

Regular

Super

Annual capacity (boxes) Costs

50,000

120,000

300,000

Annual machine rental

$8,000

$11,000

$20,000

Popcorn cost per box

130

130

130

Other costs per box

220

140

050

Cost of each box

080

080

080

Required:

a. Calculate the volume level in boxes at which the economy popper and regular popper would earn the same profit (loss).

b. Management can estimate the number of boxes to be sold at each of its theaters. Present a decision rule that would enable William’s management to select the most profitable machine without having to make a separate cost calculation for each theater.

c. Could management use the average number of boxes sold per seat for the entire chain and the capacity of each theater to develop this decision rule? Explain your answer.

Step-by-Step Solution

Request Professional Solution

Request Solution!

We need at least 10 more requests to produce the solution.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the solution will be notified once they are available.
Add your Solution
Textbook Solutions and Answers Search
Solutions For Problems in Chapter 2