Question

The marketing department of Specialty Coffees estimates the following monthly demand for a latte in these...

The marketing department of Specialty Coffees estimates the following monthly demand for a latte in these four price-quantity relationships:

Demand

a 5,000 cups at $5.50 per cup

b 6,000 cups at $5.00 per cup

c 7,500 cups at $4.50 per cup

d 9,000 cups at $4.00 per cup

The fixed costs of $ 3,000 per month are not affected by the different price-volume alternatives. Variable costs are $ 0.50 per cup. What price per cup should Specialty Coffees set for the latte?

Business   Accounting   
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Answer #1
S. No No. of Cup Sale Price Variable Cost Contribution Per Unit Total Contribution Fixed Cost Net Profit
a 5000 $5.50 $0.50 $5.00 $25,000.00 $3,000.00 $22,000.00
b 6000 $5.00 $0.50 $4.50 $27,000.00 $3,000.00 $24,000.00
c 7500 $4.50 $0.50 $4.00 $30,000.00 $3,000.00 $27,000.00
d 9000 $4.00 $0.50 $3.50 $31,500.00 $3,000.00 $28,500.00
$4 per should be fixed for latte because at $4 per Cup price demand is 9000 Cup and generate Net profit $28500 whicch is higher as compare with other alernative.
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