Espresso Express operates a number of espresso coffee stands in busy suburban ma

Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $900 and the variable cost per cup of coffee served is $0.54.

Required:

1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity.

Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. (Round off the average cost per cup of coffee to the nearest tenth of a cent.)

2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?

Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?

Explanation / Answer

1 Cups of Coffee Served in a Week 600 700 800 600 700 800 Fixed cost 900 900 900 Fixed cost Fixed, Given Variable cost 324 378 432 Variable cost 600*0.54 700*0.54 800*0.54 Total cost 1224 1278 1332 Total cost Total Total Total Average cost per cup of coffee served 2.04 1.83 1.67 Average cost per cup of coffee served Total Cost/No of Cups 2 The Variable Cost PU remains the same at any level of Cups and the Fixed Cost remains same at total Level So Variable Cost PU is Constant But Fixed Cost PU will decline as the level of cups increases Resulting in reduction of average cost per cup So Answer is Decreases.

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