You are the owner of a small coffee shop called “BeanBuzz,” and you’re facing a critical decision regarding the pricing strategy: Cost And Management Accounting Assignment, MSU, Malaysia

ANSWER ALL QUESTIONS.
You are the owner of a small coffee shop called “BeanBuzz,” and you’re facing a critical decision regarding the pricing strategy for your coffee products. The shop offers a variety of coffee options, including regular coffee, lattes, cappuccinos, and specialty drinks. You’ve noticed that your profit margins have been fluctuating recently, and you’re unsure of the best pricing approach to maximize profitability in the short term.

Here’s the current situation:

•  Your coffee shop has fixed costs such as rent, salaries, and equipment maintenance, totaling $3,000 per month. The variable costs per cup of coffee (coffee beans, milk, cups, etc.) are $1.50.
• You currently charge $3.50 for a regular coffee, $4.50 for a latte, $5.00 for a cappuccino, and $6.50 for specialty drinks. These prices have been in place for a while.
• Your monthly sales volume has been inconsistent, but on average, you sell 2,000 cups of regular coffee, 800 lattes, 500 cappuccinos, and 300 specialty drinks.
• Recently, a new coffee shop opened nearby, offering lower prices, which has started affecting your sales.
  

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REQUIRED:
(a) Assess whether your profits are sensitive to changes in sales volume and pricing. What are the implications of this sensitivity?
(You may prefer to show some calculations to justify your explanation, if applicable)

(b) Assess whether you should consider adjusting your coffee prices to compete with the new coffee shop while maintaining or increasing profitability.
(You may prefer to show some calculations to justify your explanation, if applicable)

Answer

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