Leticia Gonzalez is in charge of the concession stands division for all 100 theaters owned and operated by Midwest Cinema. Theaters range in size from single-screen (mostly in small towns) to multiplexes with 10 or more screens. Leticia wants to develop a system that will enable her to select the optimal popcorn machine for any given theater location. Leticia can rent commercial popcorn machines in small, medium, or large sizes. The fixed annual rental cost for each machine differs, as does the variable cost associated with operating and maintaining the machine. For example, the large popcorn machine costs the most to rent but requires minimal staff attention and maintenance.

The following table shows the annual fixed costs and variable costs associated with operating each popcorn machine:

Required:
a. Help Leticia determine the optimal size popcorn machine for a given theater. In other words, how many moviegoers does a theater need to have before Midwest Cinema should rent the medium and large popcorn machines?
b. Assume one of Midwest Cinema’s theaters expects 65,000 moviegoers in the coming year. What is the operating leverage for each popcornmachine?

Transcribed Image Text:

Size of Popcori Machine Small Medium Large Anual Fxd OperatingCosts Vanable Casts per Patron $6,000 $12,000 $18,500 S0.50 $0.35 $0.25