The college of Business is trying to decide whether to operate a popcorn wagon that will be used to make popcorn to sell between classes in the lobby of Schneider Hall. The popcorn wagon itself would be leased from a local food service company for $2.00 per day. The materials cost (kernels and oil) to pop a batch of fresh popcorn is approximately 40 cents. Each batch produces about 20 bags of popcorn. Due to the way the popcorn and oil is packaged, we can only pop full batches. The popcorn sells for $0.50 per bag. For now, assume the labor cost for operating the stand is negligible.
a. What is the breakeven point (number of bags of popcorn) that must be sold per day in order for the venture to be profitable?
b. Suppose we have decided to operate the popcorn wagon and have been doing so for a few weeks. At 4:30 p.m. on a particular day we have just sold our last bag of popcorn, but we have time to pop another batch before classes get out at 4:50. The stand closes at 5:00 and any excess popcorn will be thrown outside to feed the birds. Historically the probability distribution for the number of bags sold during this 10 minute period is shown below. Should we pop another batch of popcorn? Why or why not?
# of bags 1 2 3 4 or more sum
probability 0.30 0.40 0.20 0.190 1.0.
The solution determines the number of bags of popcorn that must be sold per day.