Chapter 18 Pricing and Profitability Analysis OBJECTIVE 2 ercise 18.17 Cost-Base

Question

Chapter 18 Pricing and Profitability Analysis OBJECTIVE 2 ercise 18.17 Cost-Based Pricing, Target Pricing Carina Franks operates a catering company in Austin, Texas. Carina provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. Estefan and Maria Montero have contacted Carina about plans for their daughter's Quinceañera (a festive party thrown by Hispanic parents to celebrate their daughters' fifteenth birthdays). The Monteros would like a catered affair on the lawn of a rural church. They have requested an open bar, a sit-down dinner for 350 people, a large tent, and a dance floor. Of course, they expect Carina to supply serving staff, tables with linens, dinnerware, and glassware. They will handle the flowers, the decorations, and hiring the band on their own. Carina put together this bid: Food (350 × S25) Beverages (350 × $15) Servers (6 × 4 hours × $10) Bartenders (2 × 4 hours × $10) Clean-up staff (3 × 3 hours × $10) Rental of: $ 8,750 5,250 240 80 90 Dance floor Linens Tables Dinnerware Glassware 300 80 200 120 150 $15,260 Total Required 1. Explain where costs for Carina's services and profit are calculated in the preceding bid. 2. Suppose that the Monteros blanch when they see the preceding bid. One of them suggests that they had hoped to spend no more than $10,00 or so on the party. How could Carina work with the Monteros to achieve a target cost of that amount? Estefan Montero protests the cost of dance floor rental. He said, "I've seen those for rent at U-Rent-It for $75." How would you respond to this remark if you were Carina? (Hint: You want this job and so telling him, "Go ahead and do it yourself, Cheapskate!" is not an option.) 3.

Explanation / Answer

a) Carina’s Service and profit are calculated in the material prices she quoted in the bid. For example Food preparation includes so many activities like choosing the recipes,buying ingredients,cooking food,transportation,setting up the tables, serving, managing the staff throughout the party and clean up. She has to take the dance floor on rent ,finding and negotiating for the best price, transporting it to the church, fixing it up, dismantle afterwards and returning it back b) Carina should discuss with Monteros what is their basic requirement and which things are must to have in the party.For Example instead of sit-down dinner they can go for buffet it will save some cost on serving staff and less time consuming , In place of open bar they can serve champagne punch and soft drinks and they can cut short their list of invitees. c) Carina should tell Estefan that there are many activities involved in renting and setting up the dance floor transporting it to the church, fixing it up, dismantle afterwards and returning it back. So 'U rent it ' dance floor doesn't include all these services they will just rent the dance floor for $75 other costs Monteros has to bear. Carina should suggest he could rent it himself and handle all activities involved with the dance floor.

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