Question

Exercise 1-4 Fixed and Variable Cost Behavior (LO1-4] Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22. 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 2,000 2,100 2,200 Fixed cost Variable cost Total cost Average cost per cup of coffee served $ 0 $ 0 $ < Required 1 Required 2 >

Answer 1

Ans.1		Cups of Coffee Served in a week
		2,000	2100	2200
	Fixed cost	$1,200	$1,200	$1,200
	Variable cost	$440	$462	$484
	Total cost	$1,640	$1,662	$1,684
	Cups of Coffee Served in a week	$0.82	$0.79	$0.77
	*Total fixed cost and Variable cost per unit remain constant on each level of activity.
	Total variable cost =   Variable cost per unit * Cups of Coffee Served in a week
	Cups of Coffee Served in a week	2,000	2100	2200
	Variable cost	$0.22 * 2,000	$0.22 * 2,100	$0.22 * 2,200
	Average cost per cup of coffee served = Total cost / Cups of Coffee Served in a week
		2,000	2100	2200
	Cups of Coffee Served in a week	$1,640 / 2,000	$1,662 / 2,100	$1,684 / 2,200
Ans. 2	Decrease
	Explanations: Average cost per cup of coffee served can by calculated by the sum of fixed cost per cup of coffee served
	and variable cost per cup of coffee served. Variable cost per unit remains constant in every week but the fixed cost per
	unit decreases as per the activity increase, so the total average cost per unit will decrease as per the activity increase.