### 03-var-Cost-1cup - Welcome to Prospect Learning

```Cost of A Cup of ‘Quality’ Coffee
Ted Mitchell
Sources of Cost Information
• General Information in the student manual
• Coffee Calculator in game
• Materials Report in the game
Weekly Report on Marketing
Performance
Week #1
Revenue, R = P x Q
\$3.50 x 1069 cups
\$3,741.50
Cost of Goods sold, V x Q
\$0.32 x 1069
\$342.08
Gross Profit, G = (P-V) x Q
\$3.18 x 1069
\$3,399.42
Servers
\$1,741.50
Adv & promotion
\$2,800.00
Marketing’s Contribution
to Weekly Profit
Calculating the the direct cost for making a
(aka variable cost per cup, V)
\$4,541.50
(\$1,142.08)
cup of coffee
Calculation for
Variable Cost per cup
• Quality of the Coffee
– \$5 per pound for good
– \$6 per pound for best
– \$7 per pound for organic
• 62.5 shots of espresso per pound
– 1 shot of espresso for 12 oz cup
– 2 shots of espresso for 16 oz cup
– 3 shots of espresso for 20 oz cup
• All Cups are about \$0.07 to \$0.09 each
• Do NOT include any fixed costs or depreciation
Direct Cost per Medium Cup
Quality
Good
Best
Organic
Costs per cup
0.09
0.09
0.09
Cost per lb
\$5
\$6
\$7
Shots per lb
62.5
62.5
62.5
Cost per shot
\$lb/62.5 shots per lb
0.08
0.096
0.112
Shots needed
2
2
2
Cost of espresso
0.16
0.192
0.224
Total cost per cup
0.25
0.282
0.314
Total cups
2,436
2,436
2,436
Cost of Goods Sold
\$609
\$687
\$765
The total Cost of Goods Sold, COGS
• Is also called the total variable cost for period
• The actual size of the COGS depends on the
number of cups of coffee sold
• The amount of the COGS varies directly with the
number of cups sold and the revenue earned
• The direct cost of making an individual cup of
coffee can be constant over the decision period
• The direct cost of making an individual cup of
coffee is defined as the variable cost per unit sold
Total Variable Cost
Total Cost of Goods Sold Increases
As Production Increases.
Dollars
Total Cost of Goods Sold
Total Variable Cost
Quantity of Coffee Sold
Weekly Report on Marketing
Performance
Week #1
Revenue, R = P x Q
\$3.50 x 1069 cups
\$3,741.50
Cost of Goods sold, V x Q
\$0.32 x 1069
\$342.08
Gross Profit, G = (P-V) x Q
\$3.18 x 1069
\$3,399.42
Servers
\$1,741.50
Adv & promotion
\$2,800.00
Marketing’s Contribution
to Weekly Profit
Calculating the the direct cost for
\$4,541.50
(\$1,142.08)
making a
cup of coffee (aka variable cost per cup, V)
Weekly Report on Marketing
Performance
Week #1
Revenue, R = P x Q
\$3.50 x 1069 cups
\$3,741.50
Cost of Goods sold, V x Q
Plus wasted coffee
\$0.32 x 1069
\$342.08
Gross Profit, G = (P-V) x Q
\$3.18 x 1069
\$3,399.42
Servers
\$1,741.50
Adv & promotion
\$2,800.00
Marketing’s Contribution
to Weekly Profit
Calculating the the direct
\$4,541.50
(\$1,142.08)
cost for making a cup of coffee (aka
variable cost per cup, V)
Most students take the COGS and divide it by the # of cups sold
COGS shows up on the Dashboard of Biz-Café
Any Questions?
• On Estimating the Cost of Goods Sold (aka the
total variable cost)?
• On estimating the direct cost of making a cup
of coffee (aka the variable cost per cup sold)?
```