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Business and Coffee

Starbucks is a global coffee company; their corporation is based in Seattle Washington. The coffee Starbucks uses is definitely a variable cost along with the milk and syrup used in the cup prepared. The paper cup and heat sleeve are all variable costs for Starbucks. The prices of coffee beans vary depending on the time of year and quality of beans purchased. Milk can vary accordingly and variable costs depend on the amount milk syrups used in each cup of coffee.

barista-koffie

The fixed costs of Starbucks will depend on the store location and the rent provided. Rent and equipment leases are a fixed cost. The rent may be different from one store to another, but once the rent and leases are establish the amount owed each month will be the same. The fixed cost fit help management analyze the overall costs.

Starbucks has several mixed costs in the corporation. Some costs can be salaries and wages which fluxgates depending on bonuses. However the wages and salaries are typically fixed, they fall in the mixed category when there are possible changes like the bonuses. Food sold at Starbucks can fall under mixed costs as well. The costs of goods change depending on demand and time of year.

The barista making and serving the coffee at Starbucks can represent step costs. If one barista serves 40 cups of coffee in one day the costs of the employee stays the same, but if more than 40 cups of coffee are needed to be made, then Starbucks will need to pay for another barista and showing more cost for the store. On a graph the step costs will look like steps on a stair case. More costs to produce more products.

Latte Love

Starbucks would be more likely to benefit from using a customer cost hierarchy for determining cost drivers. In customer hierarchy, each unit sold could be different depending on the coffee drink being made. However, for example if milk costs .0234 per ounce and a drink needs nine ounces, the cost for the milk would be $0.21. The coffee used at around $7.50 for a pound of beans worth thirty two double shots, the coffee costs for a single drink would cost $0.23. Let’s say the coffee ordered is caramel flavored and needs one and a half of syrup at $0.277 cents for the drink. The total food cost for the drink would be $0.72, but the drink must be poured into a cup with a lid and a sleeve to protect from being burnt at a cost up to an additional $0.20 cents bring the total costs of goods per cup of coffee at $0.92 cents. Each day an order level of each customer would be one coffee per day and a Starbucks store seeing 200 customers on average a day and costing the store $183.52 in goods. An average cup of coffee costs $3.50 which brings in $700 a day minus the costs of goods brings the total to $516.48. Say the barista is paid $15 an hour and serves 25 cups of coffee per hour. That would be an additional $0.60 cents per cup of coffee for a total of $1.52 per cup and $1.98 of profit.

 

Peter Mitchell. (2014). Chron. Small Business. In Examples of Mixed Costs in a Service Business. Retrieved from http://smallbusiness.chron.com/examples-mixed-costs-service-business-37030.html

Lie Dharma Putra. (2010, May 26). Accounting Financial. Cost Accounting/Management Accounting. In Cost Drivers and its Hierarchies. Retrieved from http://accounting-financial-tax.com/2010/05/cost-drivers-and-its-hierarchies/

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