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During 2017, the price that Starbucks paid its suppliers for its coffee beans decreased. Despite the decrease in coffee costs, Starbucks raised the prices of its brewed coffee across the United States by an average of about 1% in 2017. However, Starbucks did not raise prices for its bagged coffee sold at grocery stores and at Starbucks stores nationwide.

In many of the regions in which Starbucks operates, local laws have been passed to raise the minimum wage for workers. In addition, the real estate market has recovered in several cities, causing the cost of retail space for cafs to increase. Starbucks also started an initiative in 2017 to cover the full cost of an online degree for its U.S. employees who work at least 20 hours per week.

1. Would you consider Starbucks to be a service company, a merchandiser, a manufacturer, or some combination thereof? Support your answer with specific examples.

2. Think about a Starbucks caf in Bellevue, Tennessee, and a cup of coffee served and consumed in the caf.

a. What costs would be included in the total cost of a cup of coffee served in the caf? List at least five such costs.

b. Of the costs previously listed in the total cost of a cup of coffee, identify which of these costs should be included in the three types (i.) Direct Materials, (ii.) Direct Labor, or (iii.) Overhead costs.

c. Which of these three cost types would increase, decrease, or stay the same given the summary of changes in costs given in the facts for 2017.

3. Now think about a Starbucks caf in Bellevue, Tennessee, and a pound of bagged ground coffee sold in the store (assume that the beans are ground in the store at the time of sale).

a. What costs would be included in the total cost of a pound of bagged ground coffee sold at the Bellevue caf? List at least five such costs.

b. Of the costs listed for the bagged coffee in the total cost of a cup of coffee, identify which of these costs should be included in the three types (i.) Direct Materials, (ii.) Direct Labor, or (iii.) Overhead costs.

c. Which of these three cost types (i.) Direct Materials, (ii.) Direct Labor, and (iii.) Overhead costs, would increase, decrease, or stay the same given the information in the summary of changes in costs for the year 2017

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