Case 5A-12 Analysis of Mixed Costs in a Pricing Decision [LO5-11 [The following

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Case 5A-12 Analysis of Mixed Costs in a Pricing Decision [LO5-11 [The following information applies to the questions displayed below 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 Chaivez's customers request is a cocktail party She offers a standard cocktail party and has estimated the cost per guest as follows $16.00 Food and beverages Labor (8.5 hour $18.80 hr.) Overhead (0.5 hour @ $18.68/hr.) Total cost per guest 5.00 9.34? $38.34 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 actualy work When bidding on cocktal parties. Chavez adds a 12% markup to yield a price of about $39 pergust She is conf det bout her estimates of the costs of food and beverages and labor but i cost. The $18 68 overhead by total labor hours for the same period. Monthly data concerining overhead costs and labor-hours follow s not as comfortable with the estimate of overhead cost per labor-hour was determined by dividing total overhead expenses for the last 12 months Labor- Overhead Exoenses Month C Prev 4 567 of7Next>

Explanation / Answer

x y x^2 xy 2900 49000 8410000 142100000 2300 53000 5290000 121900000 2500 54000 6250000 135000000 3700 58000 13690000 214600000 4000 61000 16000000 244000000 5000 65000 25000000 325000000 6000 68000 36000000 408000000 7000 71000 49000000 497000000 6500 69000 42250000 448500000 4000 62000 16000000 248000000 3600 58000 12960000 208800000 6000 66000 36000000 396000000 53500 734000 266850000 3388900000 As per Least Sq Reg equation: y = a + bx b= n*sum(xy)-sum(x)*sum(y) / n*sum(x^2) - (sum x)^2 b= (12*3388900000 - 53500*734000) / (12 * 266850000 - 53500*53500)= 4.11 a = sum y - b (sum x) / n a = 734000 - 4.11*53500 / 12 = 42842.92 so, y = 42842.92 + 4.11 x Req 2A) Fixed cost per month = $42842.92 Variable cost per hour = $4.11 Req 2B) y = 42842.92 + 4.11 x

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