Starcups Coffee Company is launching a new sustainability initiative that would reward customers for purchasing a reusable cup. During the cup promotion, customers would pay an extra $1.00 for the reusable cup and would receive a 20% discount each time they return with the cup to buy a cup of coffee. Each week Starcups serves 46,000 customers who purchase an average of 3.00 cups of coffee per week (138,000 cups total). Starcups's contribution margin income statement for a typical week is shown below: Units Per Unit 138,000 138,000 Total Sales Revenue Variable Cost Contribution Margin $5.20 $717,600 289,800 $3.10 $427,800 2.10 138,000 Fixed Costs 106,000 Net Operating Income $321,800 Assume the new cup promotion is expected to impact sales volume, revenue, fixed, and variable costs as follows: • Starcups estimates that 30% of its current customers (13,800) will participate in the promotion. The remainder of its existing customer base (32,200) will continue to buy an average of 3.00 cups of coffee per week.
Starcups Coffee Company is launching a new sustainability initiative that would reward customers for purchasing a reusable cup. During the cup promotion, customers would pay an extra $1.00 for the reusable cup and would receive a 20% discount each time they return with the cup to buy a cup of coffee. Each week Starcups serves 46,000 customers who purchase an average of 3.00 cups of coffee per week (138,000 cups total). Starcups's contribution margin income statement for a typical week is shown below: Units Per Unit 138,000 138,000 Total Sales Revenue Variable Cost Contribution Margin $5.20 $717,600 289,800 $3.10 $427,800 2.10 138,000 Fixed Costs 106,000 Net Operating Income $321,800 Assume the new cup promotion is expected to impact sales volume, revenue, fixed, and variable costs as follows: • Starcups estimates that 30% of its current customers (13,800) will participate in the promotion. The remainder of its existing customer base (32,200) will continue to buy an average of 3.00 cups of coffee per week.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
100%
Transcribed Image Text:Starcups Coffee Company is launching a new sustainability initiative that would reward customers for purchasing a reusable cup.
During the cup promotion, customers would pay an extra $1.00 for the reusable cup and would receive a 20% discount each time they
return with the cup to buy a cup of coffee.
Each week Starcups serves 46,000 customers who purchase an average of 3.00 cups of coffee per week (138,000 cups total).
Starcups's contribution margin income statement for a typical week is shown below:
Units Per Unit
138,000
138,000
Total
$5.20 $717,600
289,800
$3.10 $427,800
Sales Revenue
Variable Cost
2.10
Contribution Margin
138,000
Fixed Costs
106,000
Net Operating Income
$321,800
Assume the new cup promotion is expected to impact sales volume, revenue, fixed, and variable costs as follows:
• Starcups estimates that 30% of its current customers (13,800) will participate in the promotion. The remainder of its existing
customer base (32,200) will continue to buy an average of 3.00 cups of coffee per week.
• Starcups expected to attract 5,600 new customers to participate in the promotion.
Transcribed Image Text:Customers who participate in the promotion will pay an additional $1.00 for the reusable cup. They will then receive a 20%
discount on repeat visits when they bring back their reusable cup.
• The additional variable cost of purchasing the reusable cup is $2.10. The variable cost savings of the paper cup is $.35.
Starcups expects that customers who participate in the reusable cup promotion will visit an average of 5 times per week,
including the first purchase of the reusable cup.
• Starcups will spend a total of $16,000 per week advertising the reusable cup promotion.
Required:
1. Prepare a contribution margin income statement to predict how the reusable cup promotion will impact weekly net operating
income.
2. Compute the difference in total revenue, total variable costs, total contribution margin, total fixed costs, and total operating income
before and after the promotion.
3. How will this sustainability initiative impact the company's triple bottom line?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education