24. Starbucks on K Street in Washington DC has stiff competition from several ot

Question

24. Starbucks on K Street in Washington DC has stiff competition from several other small coffee shops in town. After your George Town University MBA, you are the newly minted Washington area VP and want to take a deeper look at the cost structure of this particular location and was given these set of information on that store. The Starbucks on K Street in Washington Dc has a lease expense amount of $50,000/year. There are 10 people working at the location at an average salary per employee of $50,000/year. There is also an insurance cost of $1,000/year on the facility. On average, the Starbucks produce 300,000 lattes a year. (For simplicity, assume that is the only drink the shop produces) What are the fixed cost items and what are the variable cost items at your facility? What is your total fixed cost and total variable cost? What is your total cost? What is your Average Fixed Cost? What is your Average Variable Cost? What is your Average Total Cost?

Explanation / Answer

Fixed expenses are the lease expense (50,000) and insurance cost (1,000). So fixed expenses are 51,000 a year. Variable expenses are the lattes and employee salaries. Salaries are average of 50,00 a year and latte cost is not listed so I can't calculate that but it would be (10 x 50,000 + (300,000 x [cost of lattes])). Total costs are fixed costs + variable costs. Average variable costs are what I said before at (10 x 50,000 + (300,000 x [cost of lattes])). Average total cost is also the same at variable + fixed. Not sure if there was more to this questions text or not but from what you put it is impossible to calculate it an further.

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