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 $4,541.50

Marketing’s Contribution to Weekly Profit

($1,142.08)

Calculating the the direct cost for making a cup of coffee (aka variable cost per cup, V)

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 CupQuality 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

Dollars

Quantity of Coffee Sold

Total Cost of Goods SoldTotal Variable Cost

Total Cost of Goods Sold IncreasesAs Production Increases.

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 $4,541.50

Marketing’s Contribution to Weekly Profit

($1,142.08)

Calculating the the direct cost for 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 QPlus 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 $4,541.50

Marketing’s Contribution to Weekly Profit

($1,142.08)

Calculating the the direct 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 soldCOGS 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)?