Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,000 and the variable cost per cup of coffee served is $0.74. 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 Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of served in a week increases? Increase Decrease Remain the same < Required 1 Required 2 >

Answer 1

Answer to 1st Question :

First of all, I would like to explain the following assumptions used in providing the answer :

1. Even though it is written in the question "Fill in the following table", we have not been provided any format in the image. Hence we have used our own format for answering the question.

2. Even thoguh question mentions "Indicated level of activity" we have not been provided with the same, hence we need to assume following 2 things : a) Number of coffee stands b) Number of coffee cups sold

Since no infiormation regarding these numbers is given in question we have assumed following : a) No. of coffee stands : 10 b) No. of coffee cups sold per week (all stands included)= 1000 cups

Calculation of Total cost and Average Cost

Particulars

Amount ($)

Variable Cost

740

(1000 cups* 0.74$ per cup)

Fixed Cost

10,000

(10 stands * 1000$ per stand)

Total Cost

10,740

Number of cops sold

1,000

Average Cost per cup

10.74

Answer to 2nd Question :

If the number of coffee cups sold in a week increases, number of stands remaining constant, the average cost will always decrease. This is explained with the help of example below :

We have assumed that the number of coffee cups sold have increased from 1000 cups to 1200 cups, number of stands being 10. It can be observed that Average Cost decreases from 10.74$ to 9.073$.

Calculation of Total cost and Average Cost

Particulars

Amount ($)

Variable Cost

888

(1200 cups* 0.74$ per cup)

Fixed Cost

10,000

(10 stands * 1000$ per stand)

Total Cost

10,888

Number of cops sold

1,200

Average Cost per cup

9.0733333