Maria Chavez owns a catering company that serves food and beverages at parties a
ID: 2397387 • Letter: M
Question
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 e ?10.00 /hr Overhead (0.5 hour $18.66/hr. Total cost per guest 17.00 5.00 9.33 $ 31.3.3 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 yield a price of about $40 per guest. 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 concerning overhead costs and labor-hours follow: Month January February March April May June July August September October Labor- Hours 3,000 2,100 2,300 3,500 3,800 4,800 5,800 6, 800 6,300 3,800 Overhead Expenses 50,000 54,000 55,000 59,000 62,000 66,000 69,000 72,000 70,000 63,000Explanation / Answer
Food and beverages = $17.00
Labor (0.5 hrs * 10 per hour ) = $5.00
overhead (0.5 hrs *18.66 per hour) = $9.33
Total variable cost is ($17.00+ $5.00 + $9.33) = $31.33
Hence the lowest bid of Chavez for the charity event will be the variable cost i.e., $31.33 this will be the break even on the event where there is no loss of money. the lowest bid can be $31.33.