b) Advise Tara regarding her issue. Would there be a big impact on the Coffee Ho
ID: 2397398 • Letter: B
Question
b) Advise Tara regarding her issue. Would there be a big impact on the Coffee House if she gave some of her friends free Coffee? Explain why or why not. (Use point form to answer) Tara recently got a job at a coffee house close to the Dal Campus where she is attending school in Conmerce. The hours work well with her school schedule, the pay is goodand she erjoys her fiiends dropping in to visit her. The owner ofthe coffee house is not around very m?ch so a couple of other older more experienced employees supervises the eplovees One ofher co-workers (Joel) often gives his friends free coffee when they come in. Sometimes they order a fooditem too, and sometimes they don't. Tara is tempted to do the same for her friends but she is woried about the impact on the coffee house sales She knows that they charge S2.00 for a mug of coffee andit only costs the owner S0.50 for the coffee beans and $0.10 for the water, so the mark-up is good Fooditems are not as good because they take more time and materials to make. Tara thinks the mark-up is only about 25% on average, for food items. She has no idea what other costs there mightExplanation / Answer
Other costs that might be there in a Coffee House-
1. Rent of the Premises - Rent of the building in which the coffee house is situated makes a substantial expense of the coffee house.
2. Electricity Expenses - There is also a high electricity expense in the coffee house because of the Lighting and the Air Conditioning.
3. Selling and Advertising expenses - Selling and Advertising includes Advertising coffee shop over different mediums e.g. Television, Internet, Hoardings, Newspaper etc.
4. Depreciation expense - Depreciation expensive for Coffee Machines, Furniture, Air Conditioner makes a substantial part of the total expenses incurred in the Coffee Shop.
Impact on the Coffee House if she gave some of her friends free coffee-
1. It would cost coffee house $ 0.6 ( 0.5 + 0.1 ) per mug if she gives free coffee to her friends.
2. Because the other costs i.e. Rent, Electricity were being incurred anyway.
3. So the other costs are Sunk costs for the decision of providing free coffee or not.
4. But then this kind of practice is unethical and should not be prompted.
5. This would reduce the Profitability of the Coffee Shop and present lower profits than what is actually there.
6. This could also lead to termination of her job if somehow owner comes to know about it.
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