Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,400 and the variable cost per cup of coffee served is $0.28.

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?

	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

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?

	Increaseradio button unchecked1 of 3 Decreaseradio button unchecked2 of 3 Remain the sameradio button unchecked3 of 3

Answer 1

Solution A
Description	Cups of coffee served in a week
	2000	2100	2200
Fixed expense	$      1,400	$      1,400	$      1,400
Variable cost per unit	0.28	0.28	0.28
Total variable cost	2000*0.28	2100*0.28	2200*0.28
Total variable cost	$          560	$          588	$          616
Total fixed cost	$      1,400	$      1,400	$      1,400
Total cost	$      1,960	$      1,988	$      2,016
Average cost	1960/2000	1988/2100	2016/2200
Average cost	$        0.98	$        0.95	$        0.92
Solution B
As the number of units increased, the variable cost per unit remains the same
and fixed cost in total remains the same. Due to the same total fixed cost, if units increase
the average fixed cost per unit decreases.
As a result, when the total number of units increases, the cost per unit decreases.