Question

Starcups Coffee Company is launching a new sustainability Initiative that would reward customers for purchasing a reusable cup. During the cup promotion, customers would pay an extra $100 for the reusable cup and would receive a 25 percent discount each time they return with the cup to buy a cup of coffee. Each week Starcups serves 40,000 customers who purchase an average of 2.5 cups of coffee per week (100,000 cups totall. Starcups's contribution margin income statement for a typical week is shown below. Per Unit Unit Total Sales Revenue 100,000 54.00 $400,000 Variable cont 100,000 1.50 150,00 Contribution Margin 100,000 52.50 $250,00 Fixed Coats 100,00 Net Operating Is.com $150,000 Assume the new cup promotion is expected to Impact sales volume, revenue, fixed, and variable costs as follows: • Starcups estimates that 25 percent of its current customers (10,000) will participate in the promotion. The remainder of its existing customer base (30,000) will continue to buy an average of 2.5 cups of coffee per week. • Starcups expected to attract 5,000 new customers to participate in the promotion • Customers who participate in the promotion will pay an additional $1.00 for the reusable cup. They will then receive a 25 percent discount on repeat visits when they bring back their reusable cup. • The additional variable cost of purchasing the reusable cup is $1.50. The variable cost savings of the paper cup is $0.25. • Starcups expects that customers who participate in the reusable cup promotion will visit an average of 4 times per week, including the first purchase of the reusable cup. • Starcups will spend a total of $10,000 per week advertising the reusable cup promotion. Required: 1. Prepare a contribution margin income statement to predict how the reusable cup promotion will impact weekly net operating Income 2. Compute the difference in total revenue, total variable costs, total contribution margin, total fixed costs, and total operating Income before and after the promotion. 3. How will this sustainability Initiative impact the company's triple bottom line? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a contribution margin income statement to predict how the reusable cup promotion will impact weekly net operating income. Units Per Unit Total $ 0 Customers who do not participle Sales Revenue Variable Costs Contribution Margin $ $ 0 0 First purchase for customers to buy the reusable cup Sales Revenue Variable Costs Contribution Margin $ $ 0 0 0 $ Repeat visits for customers who buy the reusable cup Sales Revenue Variable costs Contribution Margin 0 0 $ 0 Required Required 2

Answer 1

1.

	Units	Per Unit	Total
Customers who do not participate
Sales Revenue	75,000	$ 4.00	$300,000
Variable Costs	75,000	1.50	112,500
Contribution Margin	75,000	2.50	187,500
First purchase for customers to buy the reusable cup
Sales Revenue	15,000	5.00	75,000
Variable Costs	15,000	2.75	41,250
Contribution Margin	15,000	2.25	33,750
Repeat visits for customers who buy the reusable cup
Sales Revenue	45,000	3.00	135,000
Variable Costs	45,000	1.25	56,250
Contribution Margin	45,000	1.75	78,750

2.

	Difference
Sales Revenue	$ 110,000
Variable Costs	60,000
Contribution Margin	50,000
Fixed Costs	10,000
Net Operating Income	$ 40,000

3. Impact will be positive.