Question
Doc Jones owns Doc's coffee shop, and his accountant has told him that his total fixed costs to run his business in a very nice
Doc Jones owns Doc's coffee shop, and his accountant has told him that his total fixed costs to run his business in a very nice upscale business-oriented neighborhood, excluding his salary, are $15,000 per month. Doc is in competition with a Seattle's coffee shop just down the block. Consequently, his prices are about the same as theirs. He has calculated that the average cup of coffee cost him $1.87 cents, which includes the coffee, the cup and condiments, such as sugar, sweetener, creams, napkins, and stir sticks.
His average selling price is $4.85 per cup. He currently sells 8,000 cups of coffee per month. Doc has figured that if he lowers his price by $1.00 per cup, he would increase his sales to 11,000 cups per month and make more money. The amount he would increase his earnings is:
| A. | $13,451 | |
| B. | Doc would earn the same. | |
| C. | Not enough information to answer the question. | |
| D. | Doc would earn less. | |
| E. | $4,289 |
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Governmental Accounting Auditing And Financial Reporting
Authors: Stephen J. Gauthier
1st Edition
0891252754, 978-0891252757
