Question

Required information 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 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 $10.ee $ 17.00 5.00 The.) Overhead (0.5 hour $18.66/hr.) Total cost per guest 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 yleld a price of about $40 per quest. 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 concering overhead costs and labor-hours follow

Answer 1

Answer 2(a):

Fixed cost = $44577.10

Variable cost per labor-hour = $4.1065

Working:

The regression analysis (least square regression method) report done in excel is as follows:

Labor- Overhead Month Expenses Hours 3,000 SUMMARY OUTPUT January February $50,000 $54,000 2,100 Regression Statistics 2,300 3,500 March $55,000 Multiple R 0.935306763 April $59,000 0.87479874 R Square 3,800 4,800 May $62,000 Adjusted R Square 0.862278614 June $66,000 Standard Error 2575.168614 July August September $69,000 Observations 5,800 12 $72,000 6,800 $70,000 6,300 ANOVA $63,000 $59,000 $67,000 3,800 October df MS Significance F ss F November 3,400 5,800 Regression 1 463351732.8 4.63E+08 69.8714 8.00079E-06 December Residual 66314933.88 6631493 10 Total 11 529666666.7 Standard Error Coefficients P-value Lower 95.0% Upper 95.0% t Stat Lower 95% Upper 95% Intercept 44577.0957 2231.739101 19.97415 2.17E-09 39604.47112 49549.72032 39604.47112 49549.72032 Labor-Hours 4.106514618 3.011888266 5.201140971 0.49127385 8.358911 8E-06 3.011888266 5.201140971

We observe from the report:

Intercept = Fixed cost = $44577.10

Variable cost per labor hour = $4.1065

Answer 2(b):

From answer above, we have:

Intercept = Fixed cost = $44577.10

Variable cost per labor hour = $4.1065

Hence the equation is:

Overhead Expenses = $44,577.10 + $4.1065 * Labor hours