Congratulations, you have just purchased a gourmet coffee shop on Rush Street for $100,000. The current prices are $1.50 for a cup of coffee and 50 cents for a donut. You sell 1 donut for every 3 cups of coffee. While you make a number of gourmet drinks at higher prices as well, these two items are your biggest sellers. Your costs are as follows:

Coffee per cup 15 cents

Sugar and cream per cup 5 cents

Cinnamon and chocolate per cup 2 cents

Cups and lids 3 cents, Donuts cost 25 cents

Help 2 people normally, each paid $8 per hour

Extra help on busy weekends 2 people

Your rent is $3000 / month

Utilities are $200 / month

Advertising $100 / month

There are four other coffee shops within walking distance. Starbucks is just around the corner. The past owners sold 300 cups of coffee per day during the week and 500 cups on weekends. Your store is open 10 hours a day every day.

1) What is the cost of each cup of coffee? Provide lots of details.

2) Based on the above, what business strategy would seem appropriate? Convince your banker that you know the business and the area.