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 $0.68. 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 1,500 1,600 1,700 Fixed cost Variable cost Total cost Average cost per cup of coffee served $ 0 $ 0 $ 0 < Required 1 Required 2 >

Answer 1

Answer to Question 1:

	Coffee cups served in week
	1,500	1,600	1,700
Fixed cost	$            900	$            900	$            900
Variable cost	$        1,020	$        1,088	$        1,156
Total cost	$        1,920	$        1,988	$        2,056
Avg cost per cup of coffee served	$        1.280	$        1.243	$        1.209

Explanation - The variable cost is arrived by multiplication of number of cups with variable cost per cup ($0.68). The fixed cost will remain same for any level of activity ($900). The total cost is the sum total of Fixed and variable costs. Average cost is arrived by dividing total cost with number of cups served.

Answer to question 2:

"Decrease"

Explanation - From the answer to question 1, it is clear that the average cost per cup of coffee served is decreasing by the increase in no of coffee cups served. This is because the fixed cost being remained same for all level of activities, therefore the increase in number of cups will dilute the fixed cost apportioned to each cup which result in decrease of average cost per cup served.