(Solved) : Randolph Dana Owns Catering Company Prepares Banquets Parties Business Functions Throughou Q26213259 . . .

Randolph Dana owns a catering company that prepares banquets andparties for business functions throughout the year. Dana’s businessis seasonal, with a heavy schedule during the summer months and theyear-end holidays. During peak periods there are extra costs;however, even during nonpeak periods Dana must work more to coverhis expenses.

One of the major events Dana’s customers request is a cocktailparty. He offers a standard cocktail party and has developed thefollowing cost structure on a per-person basis.

Food and beverages.. Labor (6 hr. $11 per hou. Overhead (6 hr.$14 per hour.. Total cost per person . $14.00 6.60 8.40 $29.00

When bidding on cocktail parties, Dana adds a 15 percent markupto this cost structure as a profit margin. Dana is quite certainabout his estimates of the food and beverage and labor costs but isnot as comfortable with the overhead estimate. This estimate wasbased on the actual data for the past 12 months presented in thefollowing table. These data indicate that overhead expenses appearto vary with the direct-labor hours expended. The $14 per houroverhead estimate was determined by dividing total overheadexpended for the 12 months by total labor hours and rounding to thenearest dollar.

1. Use the High – Low method to estimate the fixed and variablecost components of overhead. Express this estimate in the form Y= a+ bX

2. Use the linear regression approach to estimate the fixed andvariable cost components of overhead. Express this estimate in theform Y= a + bX

3. Which of the three approaches (that is, the $14 per hour,hi-low, or regression) to estimating overhead cost would yourecommend to Dana and why?

4. Dana has been asked to prepare a bid for a 250-personcocktail party to be given next month. Determine the minimum bidprice that Dana should be willing to submit.

5. What other factors do you think Dana should consider indeveloping the bid price for the cocktail party?


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