Reference no: EM132471883
Case Study: Analysis of Mixed Costs in 3 Pricing Decision Christine Dandra owns a catering company that serves food and beverages at exclusive parties and business functions. Dandra‘s business is seasonal, with a heavy schedule duringthe summer months and holidays and a lighter schedule at other times. One of the major events that Dandra's customers request is a cocktail party She offers a standard cocktail party and has estimated the cost perguest for this type of party as fol lows:
Food and beverages $19.00
Labour {0.5 hour@ $15.00 per hour} $ 7.50
Overhead (0.5 hour @ $20.50 per hour) 55%
Total cost per guest $3 6.75 The standard cocktail party lasts three hours and Dandra hires one worker for every six guests, which one half-hour of labour per guest. These workers are hired only as needed and are paid only for the hours they actually work. Dandra ordinarily charges $50 per guest. She is con?dent about her estimates of the costs of food and beverages and labour but is not as comfortable with the estimate of overhead cost. The $20.50 overhead cost per labour hour was determined by dividing total overhead expenses for the past 12 months by the total labour hours for the same period. Monthly data concerningoverhead costs and labour hours appear below.
Months Labour Hours Overhead Expenses
January 1500 $48,400
February 1,560 47,620
March 1800 52,800
April 2,520 56,320
May 2200 58,960
June 3,300 62,480
July 3900 65,120
August 4,500 69,950
September 4200 66,000
October 2,700 59,840
November 1860 54,560
Deoem ber 3,900 64,240
Dandra has received a request to bid on a 200-guest fundraising cocktail party to be given next month by an important local charity. (The partywould last the usual three hours.) She would like to win this contract because the guest list for this charityevent includes many prominent individuals that she would like to land as future clients. Dandra is con?dent that these potential customers will be favourably impressed by her companys services at the charity event. Assignment Instructions
Question 1. Estimate the contribution to pro?t of a standard 200-guest cocktail party if Dandra charges her usual price of $50 perguest.
Question 2. How low could Dandra bid for the charity event, in terms of a price per guest, and still not lose money on the event itself? Again, please show your calculations clearly.
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