EXERCISE 1-4 Fixed and Variable Cost Behavior LO1-4 Espresso Express operates a
ID: 2331103 • Letter: E
Question
EXERCISE 1-4 Fixed and Variable Cost Behavior LO1-4 Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22. 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. Round off the average cost per cup of coffee to the nearest tenth of a cent. Cups of Coffee Served in a Week 2,000 2,100 2,200 Fixed 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.Explanation / Answer
1 2000 2100 2200 Fixed cost 1200 1200 1200 Variable cost 440 462 484 Total cost 1640 1662 1684 Average cost per cup of coffee served 0.820 0.791 0.765 2 The average cost per cup of coffee decreases as the number of cups of coffee served increases because the total fixed cost remains constant so the fixed cost per unit decreases with increase in volume thereby resulting in decrease in cost per unit.
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