Question

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $900 and the variable cost per cup of coffee served is $0.54.

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.

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 off the average cost per cup of coffee to the nearest tenth of a cent.)

	Cups of Coffee Served in a Week
	600	700	800
Fixed cost
Variable cost
Total cost
Average cost per cup of coffee served

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?

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

1		Cups of Coffee Served in a Week
		600	700	800			600	700	800
	Fixed cost	900	900	900		Fixed cost	Fixed, Given
	Variable cost	324	378	432		Variable cost	600*0.54	700*0.54	800*0.54
	Total cost	1224	1278	1332		Total cost	Total	Total	Total
	Average cost per cup of coffee served	2.04	1.83	1.67		Average cost per cup of coffee served	Total Cost/No of Cups
2	The Variable Cost PU remains the same at any level of Cups and the Fixed Cost remains same at total Level
	So Variable Cost PU is Constant
	But Fixed Cost PU will decline as the level of cups increases
	Resulting in reduction of average cost per cup
	So Answer is Decreases.