FreshRoll Catering provides a \"Deluxe Roller service that has proven to be popu

Question

FreshRoll Catering provides a "Deluxe Roller service that has proven to be popular and attracts many repeat customers. FreshRoll provides high quality ingredients and the specially trained staff help guests roll sushi while enjoying cocktails and other prepared appetizers. The business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times The usual price per guest for the Deluxe Roller is $54. FreshRoll has estimated the cost per guest for the Deluxe Roller service as follows Direct costs $13.00 $ 6.00 18.00 Food Drink Labor (1 Overhead costs 1.67 Miscellaneous (1 hr. x 7.157.15 $45.82 Rent (1 hr. x$1.67) Total cost per guest Labor includes food preparation and service. Here is the detail of how the one-hour for labor in the table above was computed: FreshRoll provides 1 server/tutor for every 4 guests so that is.75 hours per guest for an average 3-hour party. Another 25 hours per guest is needed for the food preparation. These workers are hired only as needed and are paid only for the hours they actually work (The detail is for background only. You can trust my computation of 1-hour per guest.) Management elieves that the direct costs above are reasonably reliable. To compute the overhead costs per hour used above (Rent and Miscellaneous), management used the following summary of costs and labor hours over the last year. (Example: Total miscellaneous OH cost/total labor hours . $7.15 per labor hour.) Miscellaneous overhead includes accounting and legal costs, utilities, supplies and other miscellaneous items. LaborHours Misc OH Costs Rent Costs 2.800 March 3,000 8,000 Apri 200 34,800 2,300 June 8,000 8,600 1,800 7.500 7,000 tober 411,900 Total Per labor hour

Explanation / Answer

1. Cost Classification

2. Least-Squares Regression Method for spliting a mixed cost into its fixed and variable cost

Formula = Variable Cost = (n.xy - x.y) / ( nx2 - (x)2

n is number of pairs of units—total-cost used in the calculation;
y is the sum of total costs of all data pairs;
x is the sum of units of all data pairs;
xy is the sum of the products of cost and units of all data pairs; and
x2 is the sum of squares of units of all data pairs.

n = 12;
x = 57,600;
y = 411,900;
x2 = 310,840,000 and
xy = 2,059,630,000

Variable Cost (b) = 12 x (2,059,630,000) - (57,600 x 411,900) / 12 x 310,840,000 - (57,600)2

= 990,120,000 / 412,320,000

= 2.40

Fixed Cost = (y - b.x) / n

= (411,900 - 2.40 x 57,600) / 12

= (411,900 - 138,300) /12

= 273,600 /12

Fixed Cost = 22,800

y = a + bx

For March Over head cost = 22,800 + (2.40 x3000) = 22,800 + 7,200 = 30,000

Advantage of this formula over average cost

1. It is a most accurate statistical technique in segregating total costs into fixed and variable components

2. The total fixed cost and variable cost per unit are determined mathematically through a series of computations

3. Calculation of Contribution Margin per Guest

(Total revenues - Total variable costs) ÷ Total Guest

As per information given 1 hrs require for 1 guest on the basis of this we assume that total no guest is equal to total nos of labour hrs = 57,600

4. Prpjected Income statment for January - 3000 guest

5. No of Guest for Earning profit after tax 20,000

Cost Details Nature Of Cost Direct Cost Food Variable Drink Variable Labour Variable Overhead Cost Rent Fixed Miscellsneous Mixed

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