Question

Check my work 1 One of the major events Rand's customers request is a cocktail party. She offers a standard cocktail party and has developed the following cost structure on a per-person basis. 2.5 points Food and beverages Labor (0.7 hr. @ $11 per hour) Overhead (0.7 hr. @ $13 per hour) Total cost per person $13.00 7.70 9.10 $29.80 eBook References When bidding on cocktail parties, Rand adds a 10 percent markup to this cost structure as a profit margin. Rand is quite certain about her estimates of the prime costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months presented in the following table. These data indicate that overhead expenses vary with the direct-labor hours expended. The $13 estimate was determined by dividing total overhead expended for the 12 months ($779,000) by total labor hours (61,200) and rounding to the nearest dollar. Month January February March April May June July August September October November December Total Labor Hours 2,600 7,500 6,000 7,200 2,900 6,300 6,300 4,000 3,400 5,600 5,600 3,800 61,200 Overhead Expenses $ 40,000 85,000 88,000 46,000 63,000 83,000 71,000 52,000 47,000 90,000 71,000 43,000 $ 779,000

Answer 1

2)
a.Variable cost per person
Food and beverages	$       13.00
Labor (.7 hr. @ $11 per hour)	$         7.70
Variable Overhead (.7 hr. @ $ 7 per hour)	$         4.90
Total cost per person	$       25.60
b)
Food and beverages	$       13.00
Labor (.7 hr. @ $11 per hour)	$         7.70
Variable Overhead (.7 hr. @ $ 7 per hour)	$         4.90
Fixed overhead (.7 hr. @ $5.87/hr.)*	$         4.11
Total cost per person	$       29.71
Fixed overhead cost per unit = (30000 x 12)/61200 hours	$         5.87
3)
Minimum Bid Price = 320 x $25.60 (variable cost per unit)	$  8,192.00
The   minimum   bid   for   a   320-person   cocktail   party  would   be $8192 .    At any price above the variable cost, Rand will be earning a contribution toward his fixed costs.
4)
Other factors that  Rand should consider in developing a bid include the following:
1)The realization that regression analysis is based on historical data, and that any anticipated changes in the cost structureshould be considered.
2) The assessment of the current capacity of Dana’s business. If the business is at capacity, other work would have to be sacrificed at some opportunity cost.
3) A determination of whether or not Rand’s bid will set a precedent for lower prices.
4) Analyses of  the competition.   If competition is rigorous, Rand may  not have much bargaining power

3 23 Rand recently attended a meeting of the local chamber of commerce and heard a business consultant discuss re 24 Intercept (a) 52000 25 Coefficient (b) 26 Using data from the regression analysis, develop the following cost estimates per person for a cocktail party. As 27 a.Variable cost per person 28 b.Absorption cost per person 29 Dana Rand has been asked to prepare a bid for a 200 person cocktail party to be given next month. Determine ti 30 31 Minimum bid price $() 32 2) 33 a.Variable cost per person 34 Food and beverages 13 35 Labor (.8 hr. @ $11 per hour) =11*0.8 36 Variable Overhead (.8 hr. @ $ 3 per hour) =0.8°B25 37 Total cost per person =SUM(B34:B36) 38 39 b) 40 Food and beverages 13 Labor (.8 hr. @ $11 per hour) =11*0.8 42 Variable Overhead (.8 hr. @ $ 3 per hour) =B36 43 Fixed overhead (.8 hr. @ $10.18/hr.)* =0.8%B46 44 Total cost per person =SUM(B40:343) 45 41 =B24*12/61300 46 Fixed overhead cost per unit = (52000 x 12)/61300 hours 47 48 3) 49 Minimum Bid Price = 280 x $24.20 (variable cost per unit) =280 B37 The minimum bid for a 280-person cocktail party would be $6776. At any price above the variable 50 cost, Dana will be earning a contribution toward his fixed costs.