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 $800 and the variable cost per cup of coffee served is $0.19. 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 1,600 1,700 1600 1,800 Fixed cost Variable cost Total cost Average cost per cup of coffee served

Answer 1

Ans:

Required 1:

Variable cost/unit and total Fixed costs do not change with change in units.

	1600	1700	1800
Fixed costs	$800	$800	`$800
Variable costs	(1600*0.19)=$304	(1700*0.19)=$323	(1800*0.19)=$342
Total costs	$1104	$1123	$1142
Average cost(Total cost/Cups of coffee served)	(1104/1600)=$0.69	(1123/1700)=$0.661	(1142/1800)=$0.634

Required 2:

Average cost per cup of coffee served decreases when the cups of coffee served in the week increases.