Question

Q1

Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26.

Required:

1. Fill in the following table with your estimates of total costs and average cost per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent.

	Cups of Coffee Served in a Week
	1,800	1,900	2,000
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? Explain.

Answer 1

	Cups of Coffee Served in a Week
	1,800	1,900	2,000
Fixed cost	$1,100	$1,100	$1,100
Varaible cost	$468	$494	$520
Total cost	$1,568	$1,594	$1,620
Average cost per cup of coffee served	$0.871	$0.839	$0.81

Average cost per cup of coffee served = Total cost ÷ Cups of coffee served in a week

2. Decreases

The average cost of a cup of coffee served declines as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.