Question

Java Joe operates a chain of coffee shops. The company pays rent of $20,000 per year for each shop. Supplies (napkins, bags and condiments) are purchased as needed. The manager of each shop is paid a salary of $3,000 per month, and all other employees are paid on an hourly basis. Relative to the number of customers for a shop, the cost of supplies is which kind of cost?

Answer 1

Answer:

The correct answer is Variable Cost.

Explanation:

According to the scenario, the rent and manager salary is fixed, so, it is under fixed cost.

Whereas, Cost of supplies ( i.e. napkins, bags and condiments) are variable according to the number of customer. As the number of customer increases, cost of supply also increases and as the number of customer decreases, cost of supply also decreases.

This type of cost is known as Variable cost,

Hence, The cost of supply is Variable cost in the given scenario.