1. Calculate the cost of coffee beans per ounce of coffee sold.
2. Calculate the cost of cups, lids, sleeves, cream, and sugar per unit for small, medium, and large cups of coffee and in total.
3. Calculate the total labor costs for the year.
4. Prepare an income statement for The Daily Grind for the last year. You can assume that there are no inventories on hand at the end of the yeas (All coffee and supplies purchased during the year are consumed.)
5. Determine whether the costs incurred by The Daily Grind are fixed, variable (with respect to number of cups of coffee sold), or mixed.
6. Use regression analysis and the high/low method to calculate the monthly fixed cost and the variable component of the utility expenses incurred by The Daily Grind. Use cups of coffee sold as the independent variable and utility expense as the dependent variable in your regression analysis. After calculating both numbers, round your final answers to two decimal places.
7. Compare the regression results with the high/low results. Which model would you suggest?
8. Calculate the contribution margin earned for each product (round to three decimal places) and the weighted-average contribution margin (round to four decimal places).
9. Assume the sales mix given in the problem. What is Daily Grind's break-even point in terms of the number of cups of coffee sold during the year?
10. David is contemplating adding a new 20-ounce product for the coming year and discontinuing sales of the small 8-ounce cup. The new cup, lid, and sleeve cost the same as the 16-ounce cup, but cream and sugar is expected to cost $.06 per cup instead of $.04 per cup. The new extra-large cup would be priced at $2.40. David anticipates that the new sales mix would be 50% for the 12-ounce cup, 30% for the 16-ounce cup, and 20% for the new 20-ounce cup. Assume that material, labor, and overhead costs remain the same in the upcoming year. How would this change in sales mix affect the company's break-even point?
11. David would like to increase sales in the second year of operations so that he may raise his sal¬ary to $50,000 (not including $15,000 of fringe benefits) while reducing his workload to 40 hours per week with two paid weeks of vacation dur¬ing the year. Reducing his workload will require increasing the number of hours worked by part-time employees by 1,080 hours per year. Assume the introduction of the extra-large cup and the new sales mix as discussed in requirement 10. What level of annual sales would be required in order for David to reach his goal?
12. Write a short memo to David and discuss whether you think he will be able to reach his goal during the second year of operations.