Coffee Cart Sells a Variety of Hot and Cold Coffee

Question

Examlex · Accepted Answer

The Answer is a)Ingredients are variable because we use them as we sell product.
Miscellaneous supplies are also variable
Rent is fixed
Wages for part time employees are variable
Store attendant salary is fixed.
b)TC = ($1,000 + $5,000)+ ($7,800 + $1,200 + $3,000)/$20,000 x total revenues = $6,000 + 0.60 x total revenues
c)There are many possible reasons why the cost function might provide an inaccurate estimate. Here are several possible reasons; students may think of others:
-Cost behaviour may have been misclassified when creating the cost function
-Revenue might be an inappropriate cost driver for one or more of the variable costs
-Fixed costs might change from the prior month. For example, the cart attendant's salary might be increased or a new rental agreement might be negotiated.
-Variable costs per dollar of revenue might change from the prior month. For example, the company might negotiate a lower cost for supplies such as napkins, or ingredient costs might fluctuate with food commodity prices.
-The cost function was estimated using only one month's data, which might not be representative of the activities and costs for other months.

Coffee Cart Sells a Variety of Hot and Cold Coffee

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