Jasmine lee owns a catering company that serves food and

Reference no: EM13585546

Jasmine Lee owns a catering company that serves food and beverages at exclusive parties and business functions. Lee's business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times.

One of the major events that Lee's customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest for this party as follows:


Food and beverages	$	16.00
Labor (.50 hour @ $9.60 per hour)		4.80
Overhead (.50 hour @ $18.66 per hour)		9.33

Total cost per guest	$	30.13

This standard cocktail party lasts three hours and Lee hires one worker for every six guests, which is one-half hour of labor per guest. These workers are hired only as needed and are paid only for the hours they actually work.

Lee ordinarily charges $34 per guest. She is confident about her estimates of the costs of food and beverages and labor, but is not as comfortable with the estimate of overhead cost. The $18.66 overhead cost per labor-hour was determined by dividing total overhead expenses for the last 12 months by total labor-hours for the same period. Monthly data concerning overhead costs and labor-hours appear below:

Month	Labor Hours	Overhead Expenses
January	1,800	$	52,800
February	2,016		57,640
March	2,160		57,600
April	3,024		61,440
May	3,240		64,320
June	3,960		68,160
July	4,680		71,040
August	5,400		73,920
September	5,040		72,000
October	3,240		65,280
November	2,232		59,520
December	4,680		70,080

Total	41,472	$	773,800

Lee has received a request to bid on a 128-guest fund-raising cocktail party to be given next month by an important local charity. (The party would last the usual three hours.) She would like to win this contract because the guest list for this charity event includes many prominent individuals that she would like to land as future clients. Lee is confident that these potential customers would be favorably impressed by her company's services at the charity event.

Required:

2.	Use the least-squares regression method to estimate the fixed and variable components of overhead expenses. (Round the "Variable cost per hour" to 2 decimal places and "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Fixed cost	$
Variable cost per hour	$

3.	Estimate the contribution to profit of a standard 128-guest cocktail party if Lee charges her usual price of $34 per guest. (Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

Contribution to profit

4.	How low could Lee bid for the charity event, in terms of a price per guest, and still not lose money on the event itself? Assume no additional fixed cost incurred. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Bid Price

The individual who is organizing the charity's fund-raising event has indicated that he has already received a bid under $31 from another catering company. Do you think Lee should bid below her normal $34 per guest price for the charity event?

	Yes
	No

Reference no: EM13585546

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