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 $0.83 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 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 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 the "Average cost per cup of coffee served" to 3 decimal places) Cups of Coffee Served in a Week 2.200 2,300 2.400 Fored cost Variable cost Total cost Avarannarrowe served

Answer 1

Expresso Express

	Cups of	coffee served	in a week
	2200	2300	2400
Fixed cost	$ 900	$ 900	$ 900
Variable cost	(2,200 units @ 0.83 each) = 2,200×0.83 = $ 1,826	(2,300 units @ 0.83 each) = 2,300×0.83 = $ 1,909	(2,400 units @ 0.83 each) = 2,400×0.83 = $ 1,992
Total cost (FC+VC)	$ 2,726 (900+1826)	$ 2,809 (900+1909)	$ 2,892 (900+1992)
Average cost per cup of coffee served (TC/ no of cups)	$ 2,726/2,200 = $ 1.239	$ 2,809/2,300 = $ 1.221	$ 2,892/2,400 = $ 1.205

Average cost per cup of coffee served is in decreasing trend when number of cups of coffee served in a week Increases. Because Variable cost per unit is constant at every stage, Fixed cost per unit is decreases with number of units Increase.