Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,900 and the variable cost per cup of coffee served is $0.45.

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.

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 2,300 2,400 2,500 Fixed cost * * * Variable cost Total cost Average cost per cup of coffee served

• Required 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?

  	Increase Decrease Remain the same

Answer 1

Answer 1)

Calculation of Total Cost and Average cost per cup of coffee as the levels of 2,300 cups, 2,400 cups and 2,500 cups

Particulars	Cups of Coffee served in a week
	2,300 Cups	2,400 Cups	2,500 Cups
Fixed Cost	$ 1,900	$ 1,900	$ 1,900
Variable Cost	$ 1,035	$ 1,080	$ 1,125
Total Cost	$ 2,935	$ 2,980	$ 3,025
Average cost per cup of coffee served	$ 1.276	$ 1.242	$ 1.210

Therefore average cost per coffee served at the level of 2,300 Cups, 2,400 Cups and 2,500 Cups is $ 1.276 per cup, $ 1.242 per cup and $ 1.210 per cup respectively.

Working Note:

• Total Fixed cost, as its name suggest is the cost that remains same at each level of number of cups sold (i.e. $ 1,900 per week).
• Total Variable cost goes up as the number of cups sold increases. However, variable cost per unit will remain same (i.e. $ 0.45 per cup served).

Total Variable cost at activity level of 2,300 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,300 cups)

                                   = $ 1,035.

Total Variable cost at activity level of 2400 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,400 cups)

                                   = $ 1,080.

Total Variable cost at activity level of 2,500 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,500 cups)

                                   = $ 1,125.

Calculation of average cost per cup of coffee served:

Total Variable cost at activity level of 2,300 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,300 cups)

                                   = $ 1,035.

Total Variable cost at activity level of 2400 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,400 cups)

                                   = $ 1,080.

Total Variable cost at activity level of 2,500 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,500 cups)

                                   = $ 1,125.

Total Variable cost at activity level of 2,300 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,300 cups)

                                   = $ 1,035.

Total Variable cost at activity level of 2400 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,400 cups)

                                   = $ 1,080.

Total Variable cost at activity level of 2,500 cups

Total Variable cost = (Variable cost per cup X number of cups of coffee served)

                                   = ($ 0.45 per cup X 2,500 cups)

                                   = $ 1,125.

Total Variable cost at activity level of 2,300 cups

Average cost per cup = (Total cost/ Number of cups of coffee served)

                                       = ($ 2,935/ 2,300 cups)

                                       = $ 1.276 per cup

Total Variable cost at activity level of 2,400 cups

Average cost per cup = (Total cost/ Number of cups of coffee served)

                                       = ($ 2,980/ 2,400 cups)

                                              = $ 1.242 per cup

Total Variable cost at activity level of 2,500 cups

Average cost per cup = (Total cost/ Number of cups of coffee served)

                                       = ($ 3,025/ 2,500 cups)

                                              = $ 1.210 per cup

Answer 2)

As the number of cups of coffee served per week goes up, the average cost per cup of coffee of coffee served decreases. It is because, the fixed cost for each activity level has remained the same and as the number of cups increase, the fixed cost per cup has come down. It is pertinent to note that though the Total variable cost has increased with the increase in the number of cups served, the variable cost per cup of coffee served will remain same at each level.