Question

Weekday lunch demand for the spicy black bean burritos sold by a food truck on the BSU campus is uncertain but believed to follow a normal distribution with a mean of 55 and a standard deviation of 7. The food truck charges $7.00 for each big spicy burrito, which are all made in the morning before the lunch crowd arrives. Suppose that all spicy burrito customers also buy a soda from the food truck for $1.25. The spicy burritos cost the food truck $3.00 to make, while the sodas cost the food truck $0.30. The food truck is aware that its reputation for high quality, fresh food, is critical to its success so they have a strict “NO OLD BURRITO” policy—any spicy burritos leftover at the end of the day are disposed of. (All sodas are sold in cans and never “go bad”. Carrying cost for sodas is nil, $0.00).

1. Suppose burrito customers buy their lunch somewhere else if the food truck is out of stock. What is the Cu for the spicy black bean burrito sold by the food truck (remember- you always have a soda with the burrito)?

1. $4.00
2. $3.00
3. $5.25
4. $4.95

2. What is the Co for the spicy black bean burrito?

1. $3.00
2. $7.00
3. $8.25
4. $3.30

3. Suppose that any customer unable to purchase a burrito settles for a lunch of Pop-Tarts and a soda, which are also purchased from the food truck. Pop-Tarts sell for $2.00 and cost the food truck $0.50. Because Pop-Tarts and soda lasts forever, the food truck never runs out of these items and can store them forever. Furthermore, assume that it costs nothing to carry Pop-Tarts and sodas in inventory. What is the Cu for burritos in this case? (Helpful Hint: All customers who buy food-whether a burrito or a Pop-Tart always buy a soda. Therefore, in this instance you can ignore the soda when computing the new Cu. The Cu will be the cost of being understocked on burritos now that customers who cannot buy a burrito always buy a Pop Tart).

1. $4.00
2. $2.50
3. $3.00
4. $1.50

Answer 1

Suppose burrito customers buy their lunch somewhere else if the food truck is out of stock. What is the Cu for the spicy black bean burrito sold by the food truck (remember- you always have a soda with the burrito)?

Cu = Price – Cost

So, if we don’t have burrito, we wont be able to sale a burrito plus a soda.

So, Cu = Cu for burrito + Cu for soda

Cu = (7 – 3) + (1.25 – 0.30)

= 4 + 0.95

= $4.95

Answer is: (d) $4.95

What is the Co for the spicy black bean burrito?

Co = Cost – Salvage + Dispose rate (if any)

= $3

Answer is: (a) $3.00

Suppose that any customer unable to purchase a burrito settles for a lunch of Pop-Tarts and a soda, which are also purchased from the food truck. Pop-Tarts sell for $2.00 and cost the food truck $0.50. Because Pop-Tarts and soda lasts forever, the food truck never runs out of these items and can store them forever. Furthermore, assume that it costs nothing to carry Pop-Tarts and sodas in inventory. What is the Cu for burritos in this case? (Helpful Hint: All customers who buy food-whether a burrito or a Pop-Tart always buy a soda. Therefore, in this instance you can ignore the soda when computing the new Cu. The Cu will be the cost of being understocked on burritos now that customers who cannot buy a burrito always buy a Pop Tart).

Cu = Price of burrito – Cost of burrito

= 7 – 3

= $4

Answer is: (a) $4.00

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