Question

Exercise C The marketing department of Specialty Coffees estimates the following monthly demand for espresso in these four price-quantity relationships: Demand 1 9,000 cups at $1.00 per cup 2 8,000 cups at $1.25 per cup 3 6,000 cups at $1.50 per cup 4 4,000 cups at $1.75 per cup The fixed costs of $3,000 per month are not affected by the different price-volume alternatives. Variable costs are $0.25 per cup. What price should Specialty Coffees set for espresso

Answer 1

Answer:

It should price the espresso at $1.25

Explanation:

$\left[\begin{array}{ccccc}&D1&D2&D3&D4\\ Sales Price&1&1.25&1.5&1.75\\ Variable Cost&0.25&0.25&0.25&0.25\\ Margin&0.75&1&1.25&1.5\\ Quantity&9,000&8,000&6,000&4,000\\ Contribution&6,750&8,000&7500&6,000\\ Fixed Cost&3,000&3,000&3,000&3,000\\ Income&3,750&5,000&4,500&3,000\\\end{array}\right]$

The best Income is generated at the price of 1.25 dollar

Therefore, this is the amount to Specialty Coffees set for espresso.