Question

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine how many cups of coffee would have to be sold to attain target profits of $3,000 per month.

Answer 1

See below

Step-by-step explanation:

The formula method is denoted by

Unit sales to attain the targeted profit =( Target profit + Fixed expenses) / Contribution margin per unit

Target profit = $3,000 per month

Fixed expenses = $1,300

Contribution margin per unit = $1.49 - $0.36 = $1.13

Therefore, unit sales to attain targeted profit = ($3,000 + $1,300) / $1.13 = 3,805.31 units

It means that 3,805.31 cup of coffee would have to be sold to attain target profit of $3,000 per month.