Maria Chavez owns a catering company that serves food and be

Maria Chavez owns a catering company that serves food and beverages at parties and business functions. Chavez\'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 Chavez\'s customers request is a cocktail party. She offers a standard cocktail party and has estimated the cost per guest as follows Food and beverages Labor (0.5 hour e ?10.00 /hr. Overhead (0.5 hour $18.66/hr.) Total cost per guest 17.00 5.00 9.33 31.33 The standard cocktail party lasts three hours and Chavez hires one worker for every six guests so that works out to one-half hour of labor per guest. These workers are hired only as needed and are paid only for the hours they actually work When bidding on cocktail parties, Chavez adds a 13% markup to yield a price of about $40 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 follow: Month January February March April May June July August September Labor- Hours 3,000 2,100 2,300 3,500 3,800 4,800 5,800 6,800 6,300 Overhead Expenses $ 50,000 54,000 55,000 59,000 62,000 66,000 69,000 72,000 70,000

Solution

Month Labor-hours Overhead expenses January              3,000 $                         50,000 February              2,100                             54,000 March              2,300                             55,000 April              3,500                             59,000 May              3,800                             62,000 June              4,800                             66,000 July              5,800                             69,000 August              6,800                             72,000 September              6,300                             70,000 October              3,800                             63,000 November              3,400                             59,000 December              5,800                             67,000            51,400 $                      746,000 SUMMARY OUTPUT Regression Statistics Multiple R 0.935306763 R Square 0.87479874 Adjusted R Square 0.862278614 Standard Error 2575.168614 Observations 12 ANOVA df SS MS F Significance F Regression 1 4.63E+08 4.63E+08 69.8714 8E-06 Residual 10 66314934 6631493 Total 11 5.3E+08 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 44577.09572 2231.739 19.97415 2.17E-09 39604.47 49549.72 39604.47 49549.72 X Variable 1 4.106514618 0.491274 8.358911 8E-06 3.011888 5.201141 3.011888 5.201141 The total variable cost per guest is computed as follows: Food and beverages ...................................... $17.00 Labor (0.5 hour × $10.00 per hour) ............... 5.00 Overhead (0.5 hour × $4.11 per hour) ........... 2.06 Total variable cost per guest .......................... $24.06 Note: Variable cost for overhead is estimted using regression of given data. Q5 Yes, Since Maria variable cost is only $24.06, and any price above that would contribute towards, Profit of Maria, so she should bid litte bit below the $39, to get the contract