Solutions

Posted by admin on December 27, 2017 in Articles

Solutions Guide:   Please do not present as your own.  This is only meant as a solutions guide for you to answer the problem on your own. I recommend doing this with any content you buy online whether from me or from someone else.
CASE 5–18 Analysis of Mixed Costs in a Pricing Decision [ LO1 , LO2 or LO3 or LO5 ] 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. . . . . . . . . . . . . . . . $15.00 Labor (0.5 hrs. @ $10.00/hr.) . . . . . . . . . 5.00 Overhead (0.5 hrs. @ $13.98/hr.) . . . . . . 6.99 Total cost per guest . . . . . . . . . . . . . . . . $26.99 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 15% markup to yield a price of about $31 per guest. She is confi dent about her estimates of the costs of food and beverages and labor but is not as comfortable with the estimate of overhead cost. The $13.98 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 Hours Expenses January . . . . . . . . . . 2,500 $ 55,000 February . . . . . . . . . 2,800 59,000 March. . . . . . . . . . . . 3,000 60,000 April . . . . . . . . . . . . . 4,200 64,000 May . . . . . . . . . . . . . 4,500 67,000 June. . . . . . . . . . . . . 5,500 71,000 July . . . . . . . . . . . . . 6,500 74,000 August . . . . . . . . . . . 7,500…