Coffee Cart sells a variety of hot and cold coffee beverages. Data for a recent month appears below:
Revenue $20,000
Costs:
Ingredients $7,800
Miscellaneous supplies (napkins, etc.)1,200
Rent 1,000
Wages for part time employees 3,000
Cart attendant salary 5,000
Total costs 18,000
Profit $ 2,000
Part time employees are scheduled for busy times, but are sent home as soon as volumes drop enough to warrant it.
a)Categorize each cost as fixed or variable and explain your choice.
b)Create a cost function.
c)Discuss three reasons why the cost function you estimated in part (b)might provide an inaccurate estimate for next month's costs.

Question

Quizplus · Accepted Answer

The Answer of Coffee Cart sells a variety of hot and cold coffee beverages. Data for a recent month appears below:
Revenue $20,000
Costs:
Ingredients $7,800
Miscellaneous supplies (napkins, etc.)1,200
Rent 1,000
Wages for part time employees 3,000
Cart attendant salary 5,000
Total costs 18,000
Profit $ 2,000
Part time employees are scheduled for busy times, but are sent home as soon as volumes drop enough to warrant it.
a)Categorize each cost as fixed or variable and explain your choice.
b)Create a cost function.
c)Discuss three reasons why the cost function you estimated in part (b)might provide an inaccurate estimate for next month's costs.

Coffee Cart Sells a Variety of Hot and Cold Coffee