exercise 1-4 (static) fixed and variable cost behavior lo1-4 espresso express operates a number of espresso…

exercise 1-4 (static) 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 companys 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? required 1 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

exercise 1-4 (static) 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 companys 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? required 1 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

Explanation:

Step1: Recall cost - behavior concepts

Total cost (TC) = Fixed cost (FC)+Variable cost (VC). Variable cost per unit (VC per unit) is constant in the relevant range. Fixed cost per unit (FC per unit) = FC/Number of units. As the number of units increases, FC per unit decreases because the fixed cost is spread over more units. Let the fixed cost $FC = 1200$ and variable cost per unit $VC_{per - unit}=0.22$. The total cost formula is $TC=1200 + 0.22x$, where $x$ is the number of cups of coffee served. The average cost per unit $AC=\frac{1200 + 0.22x}{x}=\frac{1200}{x}+0.22$.

Step2: Analyze the effect of an increase in the number of cups served on total cost

As the number of cups of coffee served in a week ($x$) increases, the variable cost ($0.22x$) increases since $VC = 0.22x$ and $0.22>0$. The fixed cost ($1200$) remains the same. So, the total cost $TC = 1200+0.22x$ increases.

Step3: Analyze the effect of an increase in the number of cups served on average cost per unit

The average cost per unit $AC=\frac{1200}{x}+0.22$. As $x$ (number of cups served) increases, the term $\frac{1200}{x}$ decreases (because the numerator 1200 is constant and the denominator $x$ is getting larger), and since the variable - cost per unit ($0.22$) is constant, the average cost per unit decreases.

Answer:

  1. The total cost increases.
  2. The average cost per cup decreases.